Employees of investment banks and insurers that received federal bailout aid during the economic crisis will not have to pay an extra tax on bonuses.
Gov. M. Jodi Rell vetoed the bill that would have imposed extra taxes.
The bill would have set a two-year, 2.47 percent surcharge on any bonus totaling $500,000 or more. The revenues raised would have exempted certain small businesses from the state's annual $250 business entity tax.
The Republican governor said on Wednesday that she believes the bonuses are inappropriate.
However, she predicted the legislation would trigger "a long, costly and potentially unwinnable legal battle."
The General Assembly is not expected to try to override the veto.
Rell says, however, the tax on bonuses wouldn't cover the cost of the small business tax exemption.