Changes in the federal tax code and an expiring tax provision aimed at hedge fund managers has resulted in Connecticut reaping a greater than expected collection of estimated personal income taxes in December and January.
In a statement issued by Gov. Dannel P. Malloy, the estimated personal income tax collections for this month and last month will exceed the administration’s projection by more than $900 million. Much of the tax revenue is attributed to one-time payments required under Section 457A of the Internal Revenue Code, a federal law enacted in October 2008 that requires hedge fund managers to bring back overseas profits by the end of 2017. More tax revenues are being collected due to efforts to pay taxes ahead of schedule in order to take advantage of the federal tax deduction that became capped on Jan. 1.
The state’s projection for these payments in November was $3.14 billion, of which more than $2 billion has already been collected. However, under state law, $10 million of those funds can be directed to paying down Connecticut’s $224 million budget deficit, with the rest transferred to a rainy day fund.
“We still need to take steps to close the deficit this year and to avoid one in the (fiscal) year that starts in July,” Malloy said. “If we take those steps and use these one-time revenues to rebuild our rainy day fund, we will give Connecticut residents and businesses the fiscal responsibility they have been demanding.”