AN ACT CONCERNING A PAYROLL TAX AND STRUCTURAL EFFICIENCY IN THE COLLECTION OF SUCH TAX AND ESTABLISHING AN ADMINISTRATIVE EFFICIENCY ACCOUNT FOR THE REDUCTION OF CERTAIN CONSUMER CHARGES.

Senate
sSB513 / File No. 698 1

General Assembly File No. 698
February Session, 2026 Substitute Senate Bill No. 513

Senate, April 20, 2026

The Committee on Finance, Revenue and Bonding reported
through SEN. FONFARA of the 1st Dist., Chairperson of the
Committee on the part of the Senate, that the substitute bill
ought to pass.

AN ACT CONCERNING A PAYROLL TAX AND STRUCTURAL
EFFICIENCY IN THE COLLECTION OF SUCH TAX AND
ESTABLISHING AN ADMINISTRATIVE EFFICIENCY ACCOUNT FOR
THE REDUCTION OF CERTAIN CONSUMER CHARGES.
Be it enacted by the Senate and House of Representatives in General
Assembly convened:

Section 1. (NEW) (Effective from passage) (a) As used in this section: 1
(1) "Employer" means an employer required to deduct and withhold 2
tax from wages pursuant to subparagraph (A) of subdivision (1) of 3
subsection (a) of section 12 -705 of the general statutes, as amended by 4
this act. "Employer" does not include the federal government or any 5
tribal government; 6
(2) "Payroll expense" means (A) wages, as defined in Section 3121 of 7
the Internal Revenue Code of 1986, or any subsequent corresponding 8
internal revenue code of the United States, as amended from time to 9
time, without regard to Section 3121(a)(1) of said code, and (B) 10
compensation, as defined in Section 3231 of said code, without regard 11
to Section 3231(e)(2)(A)(i) of said code, that are paid to all covered 12
employees; 13
sSB513 File No. 698

sSB513 / File No. 698 2

(3) "Covered employee" means an employee of an employer, who is 14
employed in the state, required to have amounts withheld from wages 15
pursuant to subparagraph (A) of subdivision (1) of subsection (a) of 16
section 12 -705 of the general statutes, as amended by this act, and 17
receives an annual gross income from wages and compensation of more 18
than (A) fifty thousand dollars for a person who files a return under the 19
federal income tax for the taxable year as other than a head of 20
household, or (B) eighty thousand dollars for a person who files a return 21
under the federal income tax for the taxable year as a head of household. 22
"Covered employee" includes an employee who is a member of an 23
employee organization who has provided certification from a 24
representative of such employee organization that nothing in the 25
applicable collective bargaining agreement prohibits such employee 26
from electing to receive a reduction in payroll expense in accordance 27
with the provisions of this section; 28
(4) "Electing covered employee" means a covered employee who 29
elects to participate in the payroll tax program pursuant to this section; 30
and 31
(5) "Employee organization" means any lawful association, labor 32
organization, federation or council having as a primary purpose the 33
improvement of wages, hours and other conditions of employment 34
among employees. 35
(b) There is established, for taxable years commencing on or after 36
January 1, 2027, a payroll tax program under which (1) any covered 37
employee may elect to participate in such program by agreeing to a 38
payroll expense reduction calculated in accordance with the provisions 39
of subsection (c) of this section, and who shall be allowed a credit against 40
the tax imposed under chapter 229 of the general statutes, and (2) the 41
employer of the electing covered employee shall pay (A) a payroll tax in 42
accordance with the provisions of subsection (d) of this section, and (B) 43
the additional amount set forth in subsection (f) of this section for each 44
electing covered employee. 45
(c) (1) For the purposes of this subsection, "E" means the Social 46
sSB513 File No. 698

sSB513 / File No. 698 3

Security tax rate of the employee contribution, "O" means the electing 47
covered employee's payroll expense amount prior to application of the 48
calculation under this subsection, "P" means the applicable payroll tax 49
rate and "S" means the maximum taxable earnings threshold for the 50
Social Security tax. 51
(2) The amount to which an electing covered employee's payroll 52
expense shall be reduced shall be equal to the product of (A) one 53
hundred per cent minus P, (B) multiplied by the sum of (i) the product 54
of O multiplied by P (ii) plus the product of E multiplied by the 55
maximum of zero and the minimum of (I) the sum of S plus negative O 56
plus the product of O multiplied by P, and (II) the product of O times P, 57
provided if the amount calculated under subparagraph (B)(ii) of this 58
subdivision is less than zero, such amount shall be disregarded for 59
purposes of determining the reduction under this subdivision. 60
(3) Such reduction shall apply only once at the time of an electing 61
covered employee's initial participation in the payroll tax program. A 62
reelection to participate in the program by a covered employee, who 63
was previously a participant in the program but stopped such 64
participation, shall be treated as an initial participation for purposes of 65
the payroll expense reduction. 66
(d) For taxable years commencing on or after January 1, 2027, the 67
payroll tax rates on the payroll expense of an electing covered employee 68
after application of the calculation under subsection (c) of this section 69
shall be in accordance with the following schedule: 70
(1) For any person who files a return under the federal income tax for 71
such taxable year as an unmarried individual: 72
T1 Electing Covered Employee's Rate of Payroll Tax
T2 Payroll Expense
T3 Over $50,000 but not over $100,000 5.0%
T4 Over $100,000 but not over $200,000 5.75%
T5 Over $200,000 but not over $250,000 6.34%
T6 Over $250,000 but not over $510,050 7.47%
sSB513 File No. 698

sSB513 / File No. 698 4

T7 Over $510,050 10.50%

(2) For any person who files a return under the federal income tax for 73
such taxable year as a head of household, as defined in Section 2(b) of 74
the Internal Revenue Code: 75
T8 Electing Covered Employee's Rate of Payroll Tax
T9 Payroll Expense
T10 Over $80,000 but not over $160,000 5.0%
T11 Over $160,000 but not over $320,000 5.75%
T12 Over $320,000 but not over $400,000 6.34%
T13 Over $400,000 but not over $510,050 7.47%
T14 Over $510,050 10.50%

(3) For any person who files a return under the federal income tax for 76
such taxable year as married individuals filing jointly or any person who 77
files a return under the federal income tax for such taxable year as a 78
surviving spouse, as defined in Section 2(a) of the Internal Revenue 79
Code: 80
T15 Electing Covered Employee's Rate of Payroll Tax
T16 Payroll Expense
T17 Over $50,000 but not over $100,000 5.0%
T18 Over $100,000 but not over $200,000 5.75%
T19 Over $200,000 but not over $250,000 6.34%
T20 Over $250,000 but not over $510,050 7.47%
T21 Over $510,050 10.50%

(4) For any person who files a return under the federal income tax for 81
such taxable year as a married individual filing separately: 82
T22 Electing Covered Employee's Rate of Payroll Tax
T23 Payroll Expense
T24 Over $50,000 but not over $100,000 5.0%
T25 Over $100,000 but not over $200,000 5.75%
T26 Over $200,000 but not over $250,000 6.34%
sSB513 File No. 698

sSB513 / File No. 698 5

T27 Over $250,000 but not over $255,025 7.47%
T28 Over $255,025 10.50%

(e) Each employer employing an electing covered employee shall pay 83
the payroll tax for such employee to the Commissioner of Revenue 84
Services at the same time and in the same manner the employer would 85
be required to pay the tax under subparagraph (A) of subdivision (1) of 86
subsection (a) of section 12 -705 of the general statutes, as amended by 87
this act, and shall file a return in such form and manner as the 88
commissioner prescribes. 89
(f) (1) In addition to the payroll tax under this section, an employer 90
employing an electing covered employee shall pay, for each taxable year 91
for each such employee, an amount equal to the lesser of: 92
(A) The maximum taxable earnings threshold for the Social Security 93
tax minus the payroll expense of the electing covered employee after 94
application of the calculation under subsection (c) of this section, 95
multiplied by the Social Security tax rate inclusive of both the employer 96
and the employee contributions; or 97
(B) The amount of the payroll expense reduction under subsection (c) 98
of this section multiplied by the Social Security tax rate inclusive of both 99
the employer and the employee contributions. 100
(2) If the amount calculated under this subsection for an electing 101
covered employee is less than zero, the amount such employer shall be 102
required to pay under this subsection is zero. 103
(3) Each such employer shall deposit, at the time the employer pays 104
the payroll tax to the Commissioner of Revenue Services, a pro rata 105
amount of the amount calculated pursuant to this subsection in a 106
qualifying retirement plan selected by the electing covered employee, 107
including, but not limited to, an individual retirement account, a 108
retirement plan offered by the electing employer or an individual 109
retirement account established under the Connecticut Retirement 110
Security Program pursuant to chapter 574 of the general statutes. Any 111
sSB513 File No. 698

sSB513 / File No. 698 6

amounts deposited pursuant to this subsection in any such retirement 112
plan shall not constitute property of the state and the state shall have no 113
claim to or against, or interest in, such amounts. 114
(g) (1) For taxable years commencing on or after January 1, 2027, each 115
electing covered employee shall be allowed a credit against the tax 116
imposed under section 12 -700 of the general statutes, other than the 117
liability imposed by section 12-707 of the general statutes, in an amount 118
equal to a portion of the payroll tax paid by the employer on such 119
employee's payroll expense for the taxable year pursuant to this section. 120
If the amount of the credit allowed pursuant to this subsection exceeds 121
the electing employee's liability for the tax imposed under chapter 229 122
of the general statutes, the Commissioner of Revenue Services shall treat 123
such excess as an overpayment and, except as provided under section 124
12-739 or 12-742 of the general statutes, shall refund the amount of such 125
excess, without interest, to such electing covered employee. 126
(2) The rate of the credit an electing covered employee may claim 127
shall be as follows: 128
(A) For a person who files a return under the federal income tax as a 129
married individual filing separately, ninety -two per cent if such 130
person's federal adjusted gross income is not more than the threshold 131
amount set forth for the applicable taxable year and sixty -five per cent 132
if such person's federal adjusted gross income is more than the threshold 133
amount: 134
T29 For the taxable year commencing January 1, 2027 $255,025
T30 For the taxable year commencing January 1, 2028 $257,575
T31 For the taxable year commencing
T32 on or after January 1, 2029 $260,151

(B) For a person who files a return under the federal income tax as an 135
unmarried individual, a head of household, married individuals filing 136
jointly or a surviving spouse, ninety -two per cent if such person's 137
federal adjusted gross income is not more than the threshold amount set 138
forth for the applicable taxable year and sixty -five per cent if such 139
sSB513 File No. 698

sSB513 / File No. 698 7

person's federal adjusted gross income is more than the threshold 140
amount: 141
T33 For the taxable year commencing January 1, 2027 $510,050
T34 For the taxable year commencing January 1, 2028 $515,151
T35 For the taxable year commencing
T36 on or after January 1, 2029 $520,302

(h) (1) The Comptroller shall develop educational materials about the 142
payroll tax program and distribute such materials, together with 143
materials about the Connecticut Retirement Security Program 144
established under chapter 574 of the general statutes, to employers and 145
employees in the state prior to January 1, 2027. 146
(2) Each employer shall inform its employees of the payroll tax 147
program and provide information about the program to each covered 148
employee, including, but not limited to, (A) the employer's and covered 149
employee's obligations under the program, (B) the anticipated amount 150
of the payroll expense reduction under subsection (c) of this section and 151
information about the refundable credit against the tax imposed under 152
chapter 229 of the general statutes, (C) the requirements for an employee 153
to elect to participate in the program, including the submission by the 154
covered employee of a revised withholding form for the tax imposed 155
under chapter 229 of the general statutes, (D) the requirements for an 156
employee to stop participating in the program and a timeframe for the 157
employer's reversal of the payroll expense reduction of the covered 158
employee, (E) the minimum amount of time, if any, that a covered 159
employee is required to remain a participant in the program, and (F) any 160
additional information relevant or helpful in assisting covered 161
employees to decide whether to elect to participate in the program. An 162
employer may establish a reasonable minimum amount of time an 163
electing covered employee is required to maintain participation in the 164
program. 165
(i) The provisions of sections 12 -550 to 12-554, inclusive, and section 166
12-555a of the general statutes shall apply to the provisions of this 167
sSB513 File No. 698

sSB513 / File No. 698 8

section in the same manner and with the same force and effect as if the 168
language of said sections had been incorporated in full into this section 169
and had expressly referred to the payroll tax and additional payment 170
set forth in this section, except to the extent any such provision is 171
inconsistent with a provision of this section. 172
(j) Employers and employee organizations may negotiate provisions 173
in a collective bargaining agreement calling for participation in the 174
payroll tax program under this section and the payroll expense 175
reduction for covered employees who elect to participate. 176
(k) (1) There is established an account to be known as the 177
"administrative efficiency account", which shall be a separate, 178
nonlapsing account. The account shall contain any moneys required by 179
law to be deposited in the account. Moneys in the account shall be 180
expended by the Treasurer for the purpose of reducing the public 181
benefits charge on electric bills. 182
(2) The Commissioner of Revenue Services shall calculate a structural 183
efficiency dividend amount annually, which shall be the amount by 184
which the amount determined under subparagraph (A) of this 185
subdivision is over the amount determined under subparagraph (B) of 186
this subdivision: 187
(A) The revenue generated by the payroll tax (i) plus the amount of 188
tax due under chapter 229 of the general statutes on electing covered 189
employees' payroll expense after application of the calculation under 190
subsection (c) of this section, (ii) minus the amount of the credits claimed 191
by electing covered employees under subdivision (2) of subsection (g) 192
of this section; and 193
(B) The amount of revenue that would have been generated if 194
amounts were being withheld pursuant to subparagraph (A) of 195
subdivision (1) of subsection (a) of section 12-705 of the general statutes, 196
as amended by this act, from electing covered employees' wages. The 197
structural efficiency dividend amount calculated under this subdivision 198
shall be deposited each fiscal year in the account. 199
sSB513 File No. 698

sSB513 / File No. 698 9

(3) Amounts deposited in the account shall not be commingled with 200
state funds and the state shall have no claim to or against, or interest in, 201
such amounts. 202
(4) The Comptroller shall monitor the cumulative balance in the 203
account and shall certify when the balance in the account is sufficient to 204
provide a sustainable and predictable annual reduction of the public 205
benefits charge on the electric bills of residential customers in this state 206
for a period of not less than two consecutive years. Upon certification 207
by the Comptroller, the Treasurer shall transfer available funds to 208
electric distribution companies, allocated proportionally to the total 209
residential public benefits charges assessed by each electric distribution 210
company during the preceding fiscal year. No such transfer shall be 211
made until the Comptroller has issued the certification under this 212
subdivision. 213
(5) (A) Each electric distribution company that receives a transfer 214
pursuant to subdivision (4) of this subsection shall apply the full amount 215
of the transfer to first satisfy the residential public benefits charges for 216
the current billing period, then sequentially until the residential public 217
benefits charges are retired in full. Upon such retirement, the electric 218
distribution company may apply any remaining amount of the transfer 219
to the public benefits charge assessed on other customer classes. 220
(B) The transfers under this subsection shall be reflected on the 221
electric bills of residential customers as a credit or reduction and shall 222
result in a net reduction of the total amount due. No electric distribution 223
company shall implement or seek to implement new assessments, 224
administrative fees or supplemental charges to offset the amounts 225
transferred from the administrative efficiency account. 226
Sec. 2. Section 12 -705 of the 2026 supplement to the general statutes 227
is repealed and the following is substituted in lieu thereof (Effective 228
January 1, 2027): 229
(a) (1) (A) Each employer, as defined in section 12 -707, maintaining 230
an office or transacting business within this state and making payment 231
sSB513 File No. 698

sSB513 / File No. 698 10

of any wages taxable under this chapter to a resident or nonresident 232
individual shall deduct and withhold from such wages for each payroll 233
period a tax computed in such manner as to result, so far as practicable, 234
in withholding from the employee's wages during each calendar year 235
an amount substantially equivalent to the tax reasonably estimated to 236
be due from the employee under this chapter with respect to the amount 237
of such wages during the calendar year. The method of determining the 238
amount to be withheld shall be prescribed by regulations of the 239
Commissioner of Revenue Services adopted in accordance with chapter 240
54. 241
(B) An employer shall not be required to deduct and withhold the tax 242
as set forth in subparagraph (A) of this subdivision from the wages of 243
an employee who elects to participate in the payroll tax program under 244
section 1 of this act, unless such employee has requested an amount to 245
be withheld from such employee's wages for purposes of the tax under 246
this chapter. 247
(2) (A) Except as provided in subparagraph (B) of this subdivision, 248
each payer, as defined in section 12 -707, of distributions from a profit -249
sharing plan, a stock bonus, a deferred compensation plan, an 250
individual retirement arrangement, an endowment or a life insurance 251
contract, or of pension payments or annuity distributions, that 252
maintains an office or transacts business within this state and makes 253
payment of any amounts taxable under this chapter to a resident 254
individual, shall, upon request by such individual, deduct and withhold 255
an amount from the taxable portion of any such distribution. Such 256
request and the determination of the amount to be withheld shall be 257
made in accordance with regulations promulgated by the commissioner 258
for pension payments and annuity distributions. 259
(B) (i) For the period commencing July 1, 2025, and ending December 260
31, 2026, the withholding requirement for a lump sum payment under 261
clause (ii) of this subparagraph shall not apply, except that if a payee has 262
requested an amount to be withheld from such distribution, the payer 263
shall withhold such amount. 264
sSB513 File No. 698

sSB513 / File No. 698 11

(ii) With respect to a lump sum distribution, if a payee does not make 265
a request to have an amount withheld from such distribution, the payer 266
shall withhold from the taxable portion of the distribution at the highest 267
marginal rate, except that no withholding shall be required if (I) any 268
portion of the lump sum distribution was previously subject to tax, or 269
(II) the lump sum distribution is a rollover that is effected as a direct 270
trustee-to-trustee transfer or as a direct rollover in the form of a check 271
made payable to another qualified account. 272
(iii) For purposes of this subparagraph, "lump sum distribution" 273
means a payment from a payer to a resident payee of an amount 274
exceeding fifty per cent of such resident payee's entire account balance 275
or more than five thousand dollars, whichever is less, exclusive of any 276
other tax withholding and any administrative charges and fees. 277
(3) In no event shall the requirements of this subsection result in 278
nonpayment of any distribution to a resident individual. For the 279
calendar year ending December 31, 2018, no taxpayer shall be assessed 280
interest by the commissioner pursuant to section 12 -722 solely on the 281
basis of a payer's failure to comply with the provisions of this 282
subsection. 283
(b) The commissioner may, if such action is deemed necessary for the 284
protection of the revenue and under such regulations as the 285
commissioner may adopt in accordance with the provisions of chapter 286
54, require persons other than employers and payers (1) to deduct and 287
withhold taxes from payments made by such persons to residents of this 288
state, nonresidents and part -year residents, (2) to file a withholding 289
return as prescribed by the commissioner, and (3) to pay over to the 290
commissioner, or to a depositary designated by the commissioner, the 291
taxes so required to be deducted and withheld, in accordance with a 292
schedule established in such regulations. 293
(c) The commissioner may adopt regulations providing for 294
withholding from (1) remuneration for services performed by an 295
employee for his or her employer that does not constitute wages, (2) 296
wages paid to an employee by an employer not maintaining an office or 297
sSB513 File No. 698

sSB513 / File No. 698 12

transacting business within this state, or (3) any other type of payment 298
with respect to which the commissioner finds that withholding would 299
be appropriate under the provisions of this chapter if the employer and 300
the employee, or, in the case of any other type of payment, the person 301
making and the person receiving such payment, agree to such 302
withholding. Such agreement shall be made in such form and manner 303
as the commissioner may prescribe by regulations adopted in 304
accordance with the provisions of chapter 54. For purposes of this 305
chapter, remuneration, wages or other payments with respect to which 306
such an agreement is made shall be regarded as if they were wages paid 307
to an employee by an employer maintaining an office or transacting 308
business within this state to the extent that such remuneration or wages 309
are paid or other payments are made during the period for which the 310
agreement is in effect. 311
Sec. 3. Section 3 -114h of the general statutes is repealed and the 312
following is substituted in lieu thereof (Effective June 30, 2027): 313
At the end of each fiscal year commencing with the fiscal year ending 314
on June 30, [1992] 2027, the Comptroller is authorized to record as 315
revenue for such fiscal year the amount of tax that is required to be paid 316
to the Commissioner of Revenue Services under chapter 229 and section 317
1 of this act and that is received by the Commissioner of Revenue 318
Services not later than five business days after the last day of July 319
immediately following the end of such fiscal year. 320
This act shall take effect as follows and shall amend the following
sections:

Section 1 from passage New section
Sec. 2 January 1, 2027 12-705
Sec. 3 June 30, 2027 3-114h

Statement of Legislative Commissioners:
The title was changed.

FIN Joint Favorable Subst. -LCO
sSB513 File No. 698

sSB513 / File No. 698 13

The following Fiscal Impact Statement and Bill Analysis are prepared for the benefit of the members of
the General Assembly, solely for purposes of information, summarization and explanation and do not
represent the intent of the General Assembly or either cha mber thereof for any purpose. In general,
fiscal impacts are based upon a variety of informational sources, including the analyst’s professional
knowledge. Whenever applicable, agency data is consulted as part of the analysis, however final
products do not necessarily reflect an assessment from any specific department.

OFA Fiscal Note

State Impact:
Agency Affected Fund-Effect FY 27 $ FY 28 $
Department of Revenue Services AEA - Potential
Revenue Gain
None See Below
Department of Revenue Services GF - Cost Up to 16.4
million
1.3 million
State Comptroller - Fringe
Benefits1
GF - Cost 543,660 543,660
Note: AEA=Administrative Efficiency Account; GF=General Fund

Municipal Impact: None
Explanation
The bill, which establishes a voluntary payroll tax program, results in
a potential revenue gain and significant costs as outlined below.
Revenue Impact
Establishment of a payroll tax and associated personal income tax
credit for payroll taxes paid results in a potential revenue gain to the
"administrative efficiency account" to the extent employees elect to
participate in the voluntary program. The magnit ude of the revenue
gain is dependent on (1) the number of electing employees, (2) electing
employees' wage income, and (3) continued participation in the
program.

1The fringe benefit costs for most state employees are budgeted centrally in accounts
administered by the Comptroller. The estimated active employee fringe benefit cost
associated with most personnel changes is 41.82% of payroll in FY 27.
sSB513 File No. 698

sSB513 / File No. 698 14

The table below provides an illustration of the revenue gain per filer at
select wage levels:
Revenue Impact per Electing Employee
(Single/Joint)
Wage Payroll Tax Credit Revenue Gain
75,000 3,750 3,450 300
150,000 8,625 7,935 690
225,000 14,265 13,124 1,141
400,000 29,880 27,490 2,390
600,000 63,000 40,950 22,050

Cost Impact: One-Time
This bill would require the development of a unique tax type within
the CTax and myconneCT systems by an outside vendor which results
in a one -time cost of up to $15 million in FY 27. 2 Additionally, there
would be a one-time cost of up to $100,000 in FY 27 for form and written
guidance development, as well as outreach to businesses and taxpayers
regarding the new program.
Cost Impact: Ongoing
The bill results in an annual ongoing cost of approximately $1.8
million beginning in FY 27 for salary ($65,000 each) and fringe costs
($27,183 each) associated with 20 new positions as follows:
• 11 Auditor positions for audit/enforcement;
• three Taxpayer Assistant positions for taxpayer education and
compliance;
• two Collections and Enforcement Division positions;
• two positions in the Operations Division to handle return

2 The estimate is based on vendor costs to implement similar taxes in other states.
sSB513 File No. 698

sSB513 / File No. 698 15

filings;
• one Appellate Division position for increased caseload; and
• one Revenue Accountant to calculate the
"structural efficiency dividend amount" to be deposited in the
"administrative efficiency account" annually.
The Out Years
The annualized ongoing fiscal impact identified above would
continue into the future subject to program participation levels and
inflation.

sSB513 File No. 698

sSB513 / File No. 698 16

OLR Bill Analysis
sSB 513

AN ACT CONCERNING A PAYROLL TAX AND STRUCTURAL
EFFICIENCY IN THE COLLECTION OF SUCH TAX AND
ESTABLISHING AN ADMINISTRATIVE EFFICIENCY ACCOUNT FOR
THE REDUCTION OF CERTAIN CONSUMER CHARGES.

SUMMARY
Starting with the 2027 tax year, this bill establishes a voluntary
payroll tax program that covered employees can participate in if they
earn more than $50,000 (or $80,000 for head of household tax filers) in
wages and compensation in Connecticut.
Under this program, covered employees can elect to participate in the
program by agreeing to a reduction in their wages and compensation,
as calculated under the bill. In turn, they receive a refundable credit
against their personal income tax liability for a portion of the payroll tax
paid by their employer. The employers of these electing covered
employees must (1) pay a payroll tax and (2) deposit an additional
amount in a qualifying retirement plan the employee selects.
The bill also exempts employers from withholding state income taxes
on the wages of participating employees unless the employee requests
that a specific amount be withheld from his or her wages.
EFFECTIVE DATE: Upon passage, except the income tax credit
provisions are effective January 1, 2027, and tax revenue accrual
provision is effective June 30, 2027.
COVERED EMPLOYEES AND EMPLOYERS
Under the bill, only covered employees can elect to participate in the
program. A “covered employee” is generally someone who (1) is
employed in Connecticut for an “employer” and subject to state income
tax withholding and (2) receives annual gross income from wages and
sSB513 File No. 698

sSB513 / File No. 698 17

compensation of more than $50,000 (or $80,000 for head of household
tax filers). It includes someone who is a union member, so long as a
union representative has certified that nothing in the applicable
collective bargaining agreement prohibits the employee from electing to
receive a pay reduction.
The bill specifies that employers and labor unions may negotiate
provisions in collective bargaining agreements on participating in the
bill’s payroll tax program and the payroll expense reduction for
participating employees.
Covered “employers” are those who are required to deduct and
withhold Connecticut state income tax from wages, other than the
federal government or any tribal government. This includes anyone
who is considered an employer for federal withholding purposes a nd
who maintains an office or transacts business in Connecticut and pays
taxable wages.
PAYROLL EXPENSE REDUCTION
Under the bill, electing covered employees are subject to a one -time
reduction in their covered wages and compensation (payroll expense
reduction) when they first opt into the payroll tax program. (Covered
employees who previously participated in the program but stopped are
subject to this same reduction when they reelect to participate.)
This reduction is calculated according to the formula in Figure 1.
Figure 1: Payroll Expense Reduction Formula
( 100% - Applicable
payroll tax rate ) x

( Employee’s original payroll
expense x Applicable payroll
tax rate +
Employee’s Social Security tax
adjustment
(as calculated under the bill)
)

The employee’s Social Security tax adjustment is calculated based on
the employee’s original payroll expense, the maximum taxable earnings
threshold for the Social Security tax ($184,500 for 2026), and the
sSB513 File No. 698

sSB513 / File No. 698 18

applicable payroll tax rate.
PAYROLL TAX
Covered Wages and Compensation
Under the bill, “payroll expense” means the following wages and
compensation paid to covered employees:
1. wages subject to the federal Social Security tax and Hospital
Insurance (Medicare) tax, but disregarding the cap on the amount
of wages subject to the tax; and
2. compensation subject to the federal Railroad Retirement tax.
Tax Rate
The bill’s payroll tax rates, shown in the following table, are based on
the electing covered employee’s payroll expense and federal income tax
filing status.
Table: Payroll Tax Rates
Payroll Expense Single Filers and Married Filing Jointly
$50,001 to $100,000 5.0%
$100,001 to $200,000 5.75
$200,001 to $250,000 6.34
$250,001 to $510,050 7.47
$510,051+ 10.50
Payroll Expense Married Filing Separately
$50,001 to $100,000 5.0%
$100,001 to $200,000 5.75
$200,001 to $250,000 6.34
$250,001 to $255,025 7.47
$255,026+ 10.50
Payroll Expense Head of Household
$80,001 to $160,000 5.0%
$160,001 to $320,000 5.75
$320,001 to $400,000 6.34
$400,001 to $510,050 7.47
$510,051+ 10.50

sSB513 File No. 698

sSB513 / File No. 698 19

Tax Payments
Employers must pay the payroll tax for electing covered employees
to the Department of Revenue Services (DRS) commissioner on the same
dates, and in the same way, as withholding tax payments.
Tax Revenue Accrual
The bill authorizes the state comptroller to record payroll tax revenue
received within five business days after July 31 as revenue for the
preceding fiscal year. By law, the same revenue accrual rules apply to
payments from other state taxes.
ADDITIONAL RETIREMENT CONTRIBUTIONS
In addition to paying the payroll tax, the bill also requires employers
of electing covered employees to make an additional payment each tax
year to a qualifying retirement plan for these employees. The required
payment equals the lesser of the:
1. maximum taxable earnings threshold for the Social Security tax
minus the electing covered employee’s payroll expense after
applying the payroll expense reduction, multiplied by the Social
Security tax rate for both the employer and employee (6.2% for
each or 12.4% total); or
2. payroll expense reduction amount multiplied by the Social
Security tax rate for both the employer and employee.
If this amount is less than zero, the employer is not required to make
an additional payment.
Employers must, at the same time they pay the payroll tax, deposit a
proportional amount of this payment in a qualifying retirement plan
selected by the electing covered employee. Under the bill, this may
include an individual retirement account (IRA), retirement plan offered
by the employer, or an IRA established under the Connecticut
Retirement Security Program. These deposits are not state property, and
the state has no claim to, or interest in, them.
sSB513 File No. 698

sSB513 / File No. 698 20

INCOME TAX CREDIT
Starting with the 2027 tax year, each electing covered employee is
allowed a refundable income tax credit equal to a portion of the payroll
tax paid by their employer for that year. The credit rate is 92% for
employees whose federal adjusted gross income (AGI) is at or below the
threshold amount, and 65% for those with AGIs over that amount. The
threshold amount depends on the taxpayer’s filing status, and the
applicable tax year, as shown in the following table.
Table: AGI Threshold Amount for Determining Income Tax Credit Rate
Filing Status Federal AGI ($)
2027 2028 2029+
Married Filing Separately 255,025 257,575 260,151
Single, Married Filing Jointly, or Head of Household 510,050 515,151 520,302

EDUCATIONAL MATERIALS
The bill requires the comptroller to develop educational materials
about the payroll tax program and distribute them, as well as materials
about the Connecticut Retirement Security Program, to employers and
employees by January 1, 2027.
It also requires covered employers to inform their employees about
the payroll tax program and give them specified information about it,
including the anticipated amount of their payroll expense reduction and
information about the refundable income tax cre dit. It also allows
employers to set a reasonable minimum amount of time that an electing
covered employee is required to maintain their participation in the
program.
TAX ENFORCEMENT
The bill applies the same collection, enforcement, and appeal process
requirements established in statute for the admissions and dues taxes to
the payroll tax, except for those provisions that are inconsistent with the
bill. Among other things, these provi sions cover (1) refunds for tax
overpayments; (2) hearing and appeals processes; (3) penalties for
sSB513 File No. 698

sSB513 / File No. 698 21

certain willful violations or fraud; (4) record retention and examination
requirements; and (5) methods for collecting delinquent taxes, penalties,
and interest through tax warrants and liens.
ADMINISTRATIVE EFFICIENCY ACCOUNT
The bill establishes the administrative efficiency account as a
separate, nonlapsing account that contains any moneys required to be
deposited in it. It requires the state treasurer to use the funds in the
account to reduce the public benefits charge on electric bills.
Under the bill, the DRS commissioner must annually calculate a
“structural efficiency dividend amount” that must be deposited in this
account each fiscal year. The amount is calculated as the difference
between the following:
1. payroll tax revenue (a) plus the amount of income tax due on
electing covered employees’ payroll expense after calculating the
payroll expense reduction and (b) minus the amount of payroll
tax credits against the income tax claimed by electing covered
employees; and
2. the amount of revenue that would have been generated from
income tax withholding on electing covered employees’ wages.
The account’s funds must be held separate from other state funds and
the state has no claim to, or interest in, these amounts.
The state comptroller must monitor the account’s cumulative balance
and certify when it is enough to provide a sustainable and predictable
annual reduction in the public benefits charge for at least two
consecutive years. Once certified, the state treasure r must transfer the
available funds to electric distribution companies (EDC) and distribute
them proportionally according to the total amount of the residential
public benefits charges they assessed during the preceding fiscal year.
Each EDC that receives these funds must apply them to first satisfy
the residential public benefits charges for the current billing period and
sSB513 File No. 698

sSB513 / File No. 698 22

then sequentially until they are retired in full. Once they are retired, the
EDC may apply any remaining amount to the public benefits charge
assessed on other customer classes.
These amounts must be reflected on residential customer electric bills
as a credit or reduction and must result in a net reduction of the total
amount due. The bill prohibits EDCs from implementing, or seeking to
implement, new assessments, administrative fees, or supplemental
charges to offset these amounts.
COMMITTEE ACTION
Finance, Revenue and Bonding Committee
Joint Favorable
Yea 40 Nay 14 (03/30/2026)