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Hartford - Tax refunds are up, which is good news for Connecticut taxpayers but straining the state treasury, which will lead to more spending cuts.
Between July 1 when the state's budget year began and April 26, taxpayers received $827.8 million in refunds, up 18 percent from the same 10 months the previous year, according to the Department of Revenue Services.
The higher refunds are due to inaccurate tax withholding, taxpayers taking advantage of the new Earned Income Tax Credit and an early-year boom in the stock market, which caused some taxpayers to pay more in estimated taxes, Revenue Commissioner Kevin Sullivan said.
"We're paying more money than anticipated," he said.
Gov. Dannel P. Malloy and the legislature enacted income tax increases last year that were retroactive to January 2011. It caused year-end problems for employees who lost money to inaccurate withholdings in their paychecks. Taxpayers who were overtaxed are making up for it now with higher refunds.
In addition, the Earned Income Tax Credit, which is intended to help low-income workers, provides credits of $137 to $1,700 for single heads of households with incomes of between $5,950 and $16,500 and up to $21,500 for joint tax filers. The tax credits amount to refunds.
For taxpayers who received a refund last year, refunds now would be larger because of the tax credit, Sullivan said.
A third reason explaining the higher refunds is that taxpayers who pay estimated taxes appeared to make very large payments in the first three months of the year in anticipation of the higher income taxes or who "were having a better year in the stock market," Sullivan said.
Whatever the reason, the increased refunds are adding pressure to an already unbalanced budget. The state expects refunds will total more than $1 billion, about $70 million more than anticipated.
Benjamin Barnes, Malloy's budget director, wrote to state commissioners last week that income tax revenue "appears to be trending in the wrong direction." The Malloy administration is projecting a $142 million deficit, up $79 million from an estimate in March, Barnes said in a letter to Comptroller Kevin Lembo.
In addition to the higher tax refunds, the Malloy administration blamed a Medicaid shortfall of $93.2 million.
"Put all that together and the governor will have do additional budget cuts," Sullivan said.