Connecticut Governor Signs Budget Bill Making PTET Elective and Enacts Other Tax Changes
Connecticut Governor Ned Lamont signed budget bill H.B. 6941 on June 12, 2023 making major changes to the state’s pass-through entity tax (PTET). Beginning in 2024, the PTET will be optional rather than mandatory. Eligible entities that wish to elect to pay the tax must provide the Connecticut Department of Revenue Services (DRS) written notice for each tax year, no later than the due date for filing the return (including extensions). The legislation also changes the method for calculating the tax base, eliminating the corporation tax credit for PTET taxes paid and eliminating the option for pass-through entities to file a state combined return with one or more commonly owned pass-through entities. The new legislation reimposes the requirement that pass-through entities file a nonresident composite income tax return and pay the tax on behalf of any nonresident noncorporate member.
Pass-through entities that were previously mandated to pay PTET may now determine whether it would be beneficial for them to opt into the tax. Taxpayers should model the impact of the election within a sufficient time to determine whether a tax benefit would result for the partners.
Other tax changes
Personal Income Tax Rates
For taxable years beginning January 1, 2024, the bill lowers the 5.0% personal income tax rate to 4.5% and the 3.0% rate to 2.0%. The benefits will be capped at $150,000 for single filers and $300,000 for joint filers.
Corporate income tax surcharge
The 10% corporate income tax surcharge was extended by three additional years and will now apply to the 2023, 2024 and 2025 tax years. The surcharge applies to corporations that pay more than $250 in tax liability and either file as part of a unitary combined filing group or are a corporate taxpayer having at least $100 million in annual gross income.