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OLR Bill Analysis
HB 5513
AN ACT CONCERNING THE DEDUCTION AND WITHHOLDING OF
PERSONAL INCOME TAX FROM CERTAIN PAYMENTS AND
DISTRIBUTIONS.
SUMMARY
This bill allows, rather than requires, income tax withholding for
certain retirement income distributions and changes the methods for
determining the amount of tax withheld from these distributions.
Under current law, payers that have an office in Connecticut or do
business here and make distributions from pensions, annuities, or other
specified sources must withhold income tax when making taxable
payments to Connecticut residents. (These other sources include a
profit-sharing plan, stock bonus, deferred compensation plan,
individual retirement arrangement, endowment, or life insurance
contract.)
The bill instead requires payers to withhold tax from these
distributions only if the payee requests it, unless they are “lump sum
distributions.” Under the bill, a “lump sum distribution” is any
distribution greater than $5,000 or more than 50% of the payee’s entire
account balance, whichever is less, excluding any other tax withholding
and any administrative charges and fees. The bill retains the mandatory
withholding requirement for these lump sum distributions.
EFFECTIVE DATE: January 1, 2025, and applicable to tax years
starting on or after that date.
WITHHOLDING AMOUNTS
Distributions Other Than Lump Sum Distributions
Under the bill, for distributions of $5,000 or less or 50% or less of the
payee’s entire account balance (whichever is less), the payee’s request 2024HB-05513-R000546-BA.DOCX
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for tax to be withheld and the determination of the withheld amount
must be made according to Department of Revenue Services (DRS)
regulations for pension payments and annuity distributions (see
BACKGROUND).
This requirement applies instead of the current one that payers
deduct and withhold from these distributions, as far as practicable, an
amount substantially equal to the tax reasonably estimated to be due
from the payee for those distributions during the calendar year. Under
current law, the method of determining the withheld amount is
according to instructions the DRS commissioner provides, except as
described below for distributions of a payee’s entire account balance.
Lump Sum Distributions
Under the bill, if a payee does not ask for an amount withheld from
a lump sum distribution, the payer must withhold from its taxable
portion at the highest marginal rate. Current law requires payers to
withhold at the highest marginal rate only for any payments of a payee’s
entire retirement account balance, excluding any other tax withholding
and administrative charges and fees (i.e., “lump sum distributions” as
defined under current law).
As under current law, a lump sum distribution is exempt from
withholding if (1) any portion of it was previously taxed, (2) it is a
rollover trustee-to-trustee transfer, or (3) it is a direct rollover by a check
made payable to another qualified account.
BACKGROUND
DRS Regulations on Tax Withholding for Pension Payments and
Annuity Distributions
DRS regulations require any payer of pensions and annuities that has
an office in Connecticut or does business here to withhold state income
tax from pension or annuity payments that are distributed to a state
resident if the resident requests it. (The statutes, however, have required
tax withholding for these distributions since 2018.)
Under the regulations, payers must give resident individuals who 2024HB-05513-R000546-BA.DOCX
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receive these payments a Form CT-W4P (Withholding Certificate for
Pension or Annuity Payments), and payees must use this form to
request the withholding. Their request to deduct and withhold state
income tax must be made in a specific whole dollar amount of at least
$10 per payment (Conn. Agencies Regs., § 12-705(b)-3).
COMMITTEE ACTION
Finance, Revenue and Bonding Committee
Joint Favorable
Yea 49 Nay 2 (04/02/2024)