HARTFORD, CT – The General Assembly’s Banking Committee is considering a bill to allow first-time homebuyers to contribute to a tax-deductible savings account on their way to homeownership.
Further, the bill – House Bill 5344 – will also allow employers to claim tax credits for making contributions to their employees’ home ownership accounts. The legislation includes a 10% penalty if the funds are used for anything other than a downpayment on a home or closing costs.
According to the Office of Legislative Research, savings accounts similar to the proposal in HB 5344 have been established in 14 states; each varying slightly but in general all have “provisions on the tax benefits received, contribution or account limits, and penalties for withdrawing funds for ineligible purposes.”
Peter Myers, a public policy associate at the Connecticut Business and Industry Association (CBIA), said the addition of the tax credits for employers who contribute to their employees dreams of home ownership make the bill unique among the other states with similar programs.
“This bill, however, would be the first to try to address workforce shortages by incentivizing employers to also contribute to these accounts,” Myer said.
He added that “these accounts have successfully helped residents save for purchasing a home” in the states that have already established first-time homebuyer savings accounts where home prices are similar to those in Connecticut, such as Iowa and Oregon
But according to his testimony, Myers sees the bill as a workforce recruitment tool for employers to utilize in Connecticut, which according to Labor Department data has nearly 100,000 job openings.
“Currently, our state has over 90,000 job openings, and this type of savings account would be an added benefit that employers could use to recruit and retain workers right out of trade school, the armed services, or college,” Myer said.
The program is timely as well because of the state’s ongoing housing crisis, with a shortage of available housing inventory and rising prices. The reported median home price in Connecticut is over $375,000 and rising. Myers said he believes the legislation will help to ease the cost of owning a home for first-time buyers, and help make the state more competitive in recruiting and retaining workers.
The Connecticut Bankers Association (CBA) also testified in support of the bill, stating that it would “provide first-time home buyers with the double benefit of earnings not being subject to state income tax (pre-tax dollars), and the nontaxable interest income being able to be compounded for the life of the account, meaning when a home is purchased.”
CBA also noted the tax credit as an additional benefit to employers and the state’s workforce as a whole, because it is expected to help companies attract and retain employees.
Aside from the CBIA and CBA, the bill also has the support of the Council of Small Towns and the Connecticut Realtors Association.
In a Banking Committee meeting Tuesday, Ranking Member Rep. Tom Delnicki, R-South Windsor, voiced his support of the bill, calling it a great opportunity.
“I think it will help the business climate, it will help people who want to buy a home, and it will help keep people in Connecticut, because if you buy a home and plant your roots in the nutmeg state, you’ll find that it is perhaps the finest state you could ever possibly live in,” Delnicki said.
Chris Davis, CBIA’s Vice President for Public Policy, outlined the following specifics of the legislation:
- There’s no limit on how much money can be deposited into the accounts, however;
- Single filers with income less than $100,000 can deduct on their AGI for their state income taxes up to $2,500 in contributions to the account per year;
- Married individuals filing jointly making less than $200,000 combined can deduct on their AGI for their state income taxes up to $5,000 in contributions to the account per year;
- Withdrawals from the account for qualifying eligible costs associated with buying their first home are also deductible from state income taxes;
- The substitute language adopted by the committee today will allow an employer to receive a tax credit for up to 10% of their contribution of up to $5,000 a year to the account, with a maximum credit of $500 per year pe employee, and;
- No cap on the number of credits an employer can be eligible for, i.e. they can contribute to multiple employees’ accounts each year.
