On May 31, 2018, Connecticut passed a law that changes how Connecticut taxes income earned by pass-through entities.  The law is effective for tax years on or after January 1, 2018.  It affects partnerships and S corporations, including limited liability companies treated as partnerships and S corporations for federal income tax purposes. 

In the past, an entity’s income was passed through to an entity’s individual partners, who were then required to pay tax on their distributive shares.  Now, the pass-through entity itself is responsible for paying tax on its own income at the rate of 6.99% and an amount equal to 93.01% of an entity’s income is then passed through to the individual partners.  Pass-through entities must make four estimated payments on its tax liability, each one generally equaling 22.5% of the pass-through entity’s tax liability.  For calendar-year entities, estimated payments must be made by the 15th day of April, June, September and January. 

To avoid double taxation, the individual partner receives a credit based on his or her distributive share of the tax paid by the pass-through entity that can then be claimed on the individual partner’s Connecticut income tax return.  The benefit of paying this tax at the business level is that the tax is fully deductible from federal income taxes as a business expense.  This mitigates the burden of recent Federal tax law changes that limit the total amount of state and local tax deductions individual taxpayers can take on their federal tax returns to $10,000.  By making income taxable at the business level, the burden is shifted off of individual taxpayers and the tax paid is deductible. 

It is important to note that this new law does not apply to publicly traded partnerships, single member LLCs or sole proprietorships.  Accordingly, clients may want to consider the structure of their business entities and whether this change to the pass-through entity tax will affect their businesses.  For more information, please contact Robert L. Teicher at (

© 2022 • Brody Wilkinson PC
This website may constitute Attorney Advertising in some jurisdictions | Prior results do not guarantee a similar outcome | Terms & Conditions | Privacy Protection Policy
Photographs by Diana DeLucia