House Bill No. 5513, introduced as File No. 546, proposes amendments to the personal income tax deduction and withholding requirements for payments from retirement sources such as pensions and annuities. The bill, effective January 1, 2025, changes the current mandatory withholding of tax on these distributions to a voluntary withholding upon the individual's request, except for "lump sum distributions." Lump sum distributions are redefined in the bill as payments exceeding $5,000 or more than 50% of the payee's entire account balance, whichever is less, and for these, mandatory withholding is retained. The bill also specifies that the method of determining the withholding amount for pension and annuity payments will follow regulations set by the commissioner. There is no fiscal impact on the state or municipalities, as the bill only alters the timing of personal income tax revenue collection, not the total amount.

The bill modifies the withholding process by requiring payers to follow Department of Revenue Services (DRS) regulations for determining the withheld tax amount, rather than withholding an amount equal to the estimated tax due. For lump sum distributions, if no specific withholding amount is requested by the payee, the payer must withhold at the highest marginal rate from the taxable portion. The bill continues to exempt certain lump sum distributions from withholding, such as previously taxed portions, rollover trustee-to-trustee transfers, or direct rollovers to another qualified account. Payers with an office in Connecticut or those conducting business in the state must withhold state income tax from payments to a state resident upon request, using Form CT-W4P with a specified withholding amount of at least $10 per payment. The bill received a Joint Favorable report from the Finance, Revenue and Bonding Committee with a vote of 49-2 on April 2, 2024.

Statutes affected:
Raised Bill: 12-705
FIN Joint Favorable: 12-705
File No. 546: 12-705