Connecticut’s tax system is uniquely unfriendly to families.
Connecticut is one of only two states with an income tax that does not offer tax credits or exemptions to adjust for the cost of caring for children and other dependents.
Among the key findings of this report, which compares Connecticut’s tax system to those of other states:
- Connecticut is nearly alone among states in not making broad-based adjustments to its income tax for families with dependents. Connecticut is one of only two states with an income tax that fails to offer either a tax credit or exemption for dependents. As a result, parents with children or other dependents pay virtually the same amount in state income tax as couples earning the same amount with no children, despite the high cost of caring for children and other dependents.
- Connecticut’s tax system and benefit eligibility rules create high marginal “tax” rates and “cliffs” that effectively penalize low-income families when their incomes increase. The report provides examples of how working families may lose out when their income increases due to higher tax rates and loss of critical benefits, such as housing or child care.
To support families through the tax system and bring Connecticut in line with other states, the report recommends that Connecticut policymakers consider a range of family-friendly tax policy options, including
- Creation of a dependent exemption to reflect the real costs of raising children and caring for the elderly;
- Full restoration of the state Earned Income Tax Credit, which rewards work among low-income parents; and
- Modification of income eligibility limits for the Care4Kids child care assistance programs to phase out eligibility gradually as income increases.