OLR Report 2011-R-0379 examines the personal income tax rates in Connecticut, Massachusetts, New Jersey, New York, and Rhode Island. .
Of the five states, Connecticut, New Jersey, New York, and Rhode Island have income taxes structured with multiple income brackets taxed at progressively higher marginal rates. Massachusetts is the only one of the five that imposes a flat income tax with two rates (5.3% and 12%) that apply based on the category, rather than the amount, of taxable income. Rhode Island's tax is comparatively flat with only three brackets and a top rate of 5.99% applicable to all taxable income over $125,000.
Of the three states with more progressive rate structures, New Jersey and New York have the highest top rates (8.97%), both applicable to taxable income over $500,000. Connecticut's top rate is 6.87%, applicable to taxable incomes over $500,000 for joint filers, $250,000 for singles and married couples filing separately, and $400,000 for heads of household. As of January 1, 2012, New York is scheduled to drop its two current top brackets and return to its flatter pre-2009 structure with a top rate of 6.85% applicable to taxable income over $40,000 for joint filers, $20,000 for singles and married couples filing separately, and $30,000 for heads of household.
Although Connecticut's new top rate (effective January 1, 2011) is lower than both New Jersey's and New York's current top rates, Connecticut's tax is the only one that phases out its lowest rate for higher-income taxpayers, resulting in more of their income being taxed at an initial marginal rate of 5% rather than 3%. Connecticut also requires taxpayers whose Connecticut adjusted gross income (CT AGI) exceeds certain thresholds to “recapture” or add back to their overall tax liability all or part of the benefits they receive from lower marginal rates on income not subject to the top rate. New York has a similar recapture requirement, but it is temporary and scheduled to end after the 2011 tax year.
For further details, read the full report.
