The next state budget will include a new, $200 state income tax break for Connecticut’s working poor with children or other dependents.
But a larger, child tax credit for middle-class families will have to wait at least another year, according to the compromise reached Saturday between Gov. Ned Lamont and leaders of the legislature’s Democratic majority.
“I’m very pleased to have arrived at this compromise that will deliver tangible relief to some of the Connecticut families that are struggling most mightily,” Rep. Maria Horn, D-Salisbury, co-chairwoman of the Finance, Revenue and Bonding Committee, said.
Connecticut has about 195,000 households that receive the state’s Earned Income Tax Credit, a program to help the working poor cover basic needs and increase savings. The state credit is worth 41.5% of the federal EITC’s value, meaning it adds an average of $1,061 to a qualifying household’s Connecticut income tax refund, according to nonpartisan analysts.
Couples with three or more children had to earn less than $66,819 last year to qualify for the EITC, according to the IRS. Other limits for couples were: $62,688 for those with two kids and $56,004 for those with one.
Single parents of three or more children had to earn less than $59,899 to qualify. Other limits for singles were: $55,768 for those with two kids and $49,084 for those with one.
Any EITC-eligible filers with children or other dependents would receive an additional $200 based on Saturday’s compromise. That amount would not vary regardless of the number of dependents claimed. Most EITC-eligible households have children, and while legislators didn’t release precise numbers Saturday, analysts estimate the new benefit would cost the state $26 million per year.
The administration’s budget spokesman, Chris Collibee, confirmed Saturday evening that “Governor Lamont supports this agreement that continues the progress to make Connecticut a more affordable place to live and work.”
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The child tax credit was the last major issue blocking legislators and Lamont from compromising on a new state budget, which the House and Senate both are expected to adopt before the 2025 session closes Wednesday.
Connecticut is the only state with a broad-based income tax but no provision that recognizes the cost of raising children.
Many Democrats favored a $600-per-child credit, with a maximum benefit of $1,800 per household, available to low and middle-income families. The relief package was projected to cost more than $300 million per year.
At first glance Connecticut easily could afford this. The state has closed the past seven fiscal years with an average surplus of $1.8 billion.
Analysts project a $2.4 billion cushion for the current budget, which closes June 30, and expect the state to save at least $1 billion annually through 2028.
But state officials are wary of forfeiting revenue. Proposed federal Medicaid cuts are expected to cost Connecticut hundreds of millions of grant dollars annually, possibly as soon as next fiscal year.
Given those concerns, legislative leaders scaled back the proposed child tax credit to $150 per dependent, lowering the annual cost to about $83 million.
But there were other complications.
Democrats wanted a “refundable” child tax credit. Even if a household earns so little it has no income tax liability to reduce via the credit, $150 per child still would have been added to its refund.
Lamont, a fiscally moderate Democrat, generally has opposed using state taxes to redistribute income, saying that should occur at the federal level. He did compromise with Democrats three years ago to make Connecticut’s EITC rate one of the highest among states.
The governor instead favors broadening eligibility and increasing from $300 to $350 an existing income tax break that mitigates the municipal property tax bills for about 870,000 filers — chiefly from the middle class — each year.
“We had a property tax credit [proposal.] They like a child tax credit,” the governor said early Saturday afternoon during a visit to the Capitol. “Maybe we’ll marry them in some way and get a rebate out to people in need.”
Lamont’s proposal, which also will not be included in the next budget, would have cost $85 million per year, roughly the same cost as a $150-per-dependent child tax credit.
But legislators and the governor also used several maneuvers to work around the state’s Constitutional spending cap, including moving hundreds of millions of dollars outside of the formal budget to finance future investments in child care services.
Democratic legislators, who have been pushing for a child tax credit for the past four years, are expected to resume their battle in 2026.
House Speaker Matt Ritter, D-Hartford, said his caucus members have “intense passion” for the credit.
And Horn said lawmakers are confident the EITC dependent program will bring real benefits to thousands of families and only intensify support going forward for a child tax credit.
“We do believe it is a foothold,” she said.
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