CT 529 contribution not deducting correctly

[shaylakey]

I am doing my CT taxes. We moved to CT in early 2022, so it is a part-year return, filing MFJ. After moving to the state, we opened a CHET account and contributed $10k. But when I enter the contribution during the interview, my refund only goes up by about $40. How can this be correct?

[ThomasM125]

The money you contribute to the CHET account is not tax deductible. It's tax advantage is that the interest income on money you contribute is not taxable if you use the money for qualifying education expenses.

[shaylakey]

That is flat out wrong. See this CT Dept of Revenue page confirming there is a $10k income tax deduction for CHET contributions. https://portal.ct.gov/OTT/Financial-Wellness/CHET/Connecticut-Higher-Education-Trust---CHET#:~:text=....

Why does the program not calculate that correctly?

[ErnieS0]

You don’t say what your income was. Your CHET contribution may have reduced your income to $0 or a very low level since you were a part-year resident.

[shaylakey]

No, our income was six figures. I enter the $10,000 CHET contribution and my refund goes up by $40 exactly. I delete it and the $40 goes away. This makes no sense. We are in the 5.5% bracket so how can a $10k deduction result in a $40 change? 

[AmyC]

I would like to take a deeper look at this. However, I need a diagnostic file which is a copy of your tax return that has all of your personal information removed. You can send one to us by following the  directions below:

TurboTax Online:

1. Sign into your online account.
2. Locate the Tax Tools on the left-hand side of the screen. 
3. A drop-down will appear. Select Tools  
4. On the pop-up screen, click on “Share my file with agent.”
5. This will generate a message that a diagnostic file gets sanitized and transmitted to us.
6. Please provide the Token Number that was generated in the response.

TurboTax Desktop/Download Versions:

1. Open your return.
2. Click the Online tab in the black bar across the top of TurboTax and select “Send Tax File to Agent”
3. This will generate a message that a diagnostic copy will be created.  Click on OK and the tax file will be sanitized and transmitted to us.
4. Please provide the Token Number that was generated in the response.  

[shaylakey]

Token is 1065659 Thank you. 

[AmyC · Accepted solution]

Thank you. I can see on line 50, the full amount is being taken on your return. So, I traced it through CT. That money plus exempt dividends are combined for line 52, a subtraction that carries to line 4.

CT line 1 - starts with your federal AGI 

Line 2 -  additions 

Line 3 - subtotals 

Line 4 - your line 52 subtraction  

Line 5 - CT AGI. 

Line 6 - CT income

About half the states use the ratio method of taxation, which includes CT and is causing your concern. CT is one of the states that has found a way to garner the highest tax possible. CT determines the tax on your entire income, to put you in the highest bracket possible, then multiplies by the percentage of income earned there.

Because the $10,000 is part of your line 5 CT AGI, the needle barely moves with it. If CT taxed only CT income using their tax brackets, you would see the difference.