Does CT Tax Pensions? Exemptions, Thresholds, and Phase-Out

Connecticut does tax pensions, but most retirees pay little or nothing on that income. If your federal adjusted gross income is under $75,000 as a single filer or $100,000 filing jointly, you can deduct 100% of your pension and annuity income on your state return. Above those thresholds the deduction phases out gradually rather than disappearing all at once, and certain pensions, including military and railroad retirement, are fully exempt at any income level.

How the Pension Deduction Works

Pension payments flow into your federal AGI and then into Connecticut’s tax base. The state offsets this by letting qualifying taxpayers claim a subtraction modification on Form CT-1040 for up to 100% of that income.¹ Whether you get the full deduction or a reduced amount depends on where your AGI sits relative to the thresholds above.

The same treatment covers distributions from 401(k), 403(b), and 457(b) plans. Out-of-state government pensions, including other states’ municipal retirement systems, are treated the same as private pensions for Connecticut purposes.²

You’ll need your 1099-R forms to report each distribution, then apply the appropriate deduction percentage based on your AGI and the income type.³

Pensions That Are Fully Exempt at Any Income

Two categories of retirement pay escape Connecticut tax entirely, no matter what your AGI looks like:

Military retirement pay. Retired members of the U.S. Armed Forces or National Guard, along with survivor benefit recipients, owe zero Connecticut tax on their military pension.¹
Railroad retirement benefits. Tier I and Tier II payments are fully deductible at any income level, consistent with federal protections under the Railroad Retirement Act.¹

Connecticut Teachers’ Retirement System

If you receive a TRS pension, you have a choice. You can deduct 50% of your teacher retirement pay with no AGI limit at all, or you can claim the general pension and annuity deduction of up to 100% if your AGI falls below the qualifying thresholds. You take whichever produces the larger tax break, but you cannot stack both.¹⁴

A retired teacher with $90,000 in AGI as a single filer, for example, would get more from the guaranteed 50% TRS deduction than from the general deduction that would already be phasing out at that income.

AGI Thresholds and the Phase-Out

The full 100% pension deduction is available at these AGI levels:

Single, married filing separately, or head of household: Federal AGI below $75,000
Married filing jointly: Combined federal AGI below $100,000

Above those floors, the deduction steps down through a series of AGI brackets until it reaches zero:¹

Single, MFS, or head of household: Phase-out runs from $75,000 to $100,000. No deduction at or above $100,000.
Married filing jointly: Phase-out runs from $100,000 to $150,000. No deduction at or above $150,000.

The phase-out uses a bracketed table, not a smooth formula. Joint filers with AGI between $100,000 and $104,999 can still deduct 85% of qualifying retirement income, and each subsequent bracket reduces the deductible percentage further.¹ The complete bracket table is published in the CT-1040 instructions each year. If your AGI lands anywhere in the phase-out range, working through that table line by line is the only reliable way to pin down your deduction.

This graduated structure replaced an older rule where crossing the AGI threshold by even one dollar wiped out the entire deduction. Now an extra $1,000 in AGI costs you a fraction of your deduction rather than all of it.

IRA and 401(k) Withdrawals

Traditional IRA withdrawals are taxable federally and carry into Connecticut’s starting tax base the same way pension income does. Starting with the 2026 tax year, IRA distributions qualify for the full 100% deduction under the same AGI rules as pensions, completing a phase-in that ran at 25% in 2024 and 75% in 2025.¹

Practically, 2026 is the first year a Connecticut retiree living entirely on IRA withdrawals can potentially owe zero state income tax on those distributions, provided AGI stays below the threshold. Distributions from 401(k), 403(b), and 457(b) plans have already been treated like pension income for this deduction.

Qualified Roth IRA and Roth 401(k) withdrawals are excluded from federal AGI to begin with, so they never enter Connecticut’s calculation.⁵ If you’re managing withdrawals to stay under Connecticut’s AGI limits, Roth distributions give you spending money without inflating the number that controls your deduction eligibility.

Social Security Gets the Same Treatment

Under the same AGI thresholds that govern pension income, Social Security benefits are fully deductible on your Connecticut return. Above the thresholds, a Social Security Benefit Adjustment Worksheet in the CT-1040 instructions applies the same phase-out logic used for pensions.⁶

Set Up Withholding So You Don’t Overpay

If you receive periodic pension or annuity payments, your plan administrator withholds Connecticut tax based on Form CT-W4P. File that form with your payer to tell them how much to take out. If you don’t file it, the payer withholds at the top marginal rate of 6.99%, which almost certainly overshoots what you actually owe.⁷

For a retiree whose AGI falls below the exemption thresholds, that default rate means Connecticut holds your money all year for a liability you don’t owe, and you have to wait for a refund to get it back. Filing CT-W4P takes a few minutes and closes that gap.

Who Connecticut Treats as a Resident

These rules apply if Connecticut treats you as a resident for income tax purposes. Two paths get you there.

The first is domicile. If Connecticut is your permanent legal home, you’re a resident even if you spend most of the year elsewhere. The only escape is spending 30 or fewer days in Connecticut during the tax year while maintaining no permanent home in the state and keeping a permanent home outside it.⁸

The second is the statutory resident rule. Even if you’re domiciled in another state, Connecticut treats you as a resident if you maintain a permanent place of abode here and spend more than 183 days of the year in the state.⁸ Keeping a Connecticut condo while claiming Florida residency won’t work if you also spend more than half the year in the state.

1
Connecticut General Assembly. Income Tax Exemptions for Retirement Income
2
Connecticut General Assembly. Income Taxes on Pension and Annuity Income in Select States
3
CT.gov. 2025 CT-1040 Instructions
4
CT.gov. Income Tax Exemption for Teacher Pensions
5
Department of Revenue Services, State of Connecticut. Form CT-W4P Withholding Certificate for Pension or Annuity Payments 2026
6
CT.gov. Form CT-1040 Instructions
7
Connecticut State Department of Revenue Services. CT-W4P Filing Instructions
8
Connecticut eRegulations. Connecticut General Statutes Section 12-701(a)(1)-1 – Resident of This State