Connecticut Pass-Through Entity Tax: Election, Filing, and Credits

The Connecticut pass-through entity tax is an elective 6.99% state income tax that partnerships and S corporations can pay at the entity level on their Connecticut-sourced income. Owners then claim a refundable credit on their personal Connecticut returns for their share of what the entity paid.¹ The point of doing this is federal: because the entity pays the state tax, it comes off the entity’s federal return as an ordinary business expense, bypassing the individual SALT deduction cap that would otherwise limit each owner. For tax years beginning in 2024 and later, the election is annual and must be made affirmatively.²

Why Owners Elect It: The Federal SALT Workaround

Individual taxpayers can only deduct so much in state and local taxes on their federal returns. The cap was $10,000 under the 2017 Tax Cuts and Jobs Act and rises to $40,000 beginning in 2025. Business owners in Connecticut typically blow past those numbers on the strength of state income tax alone.

The PTET moves the state tax off the owner’s personal return and onto the entity’s books. The IRS confirmed this treatment in Notice 2020-75, which says state income taxes paid by a partnership or S corporation are deductible when the entity computes its federal taxable income and are not counted against any partner’s or shareholder’s SALT cap.³ The 6.99% Connecticut tax reduces the income shown on each owner’s federal K-1, and owners then take a refundable Connecticut credit so they aren’t taxed twice at the state level.

Which Businesses Qualify

Any entity treated as a partnership or S corporation for federal income tax purposes can elect the PTET. That covers general partnerships, limited partnerships, LLPs, and LLCs taxed as partnerships or S corporations.⁴ The entity must be doing business in Connecticut or have income from Connecticut sources. A substantial economic presence counts as doing business even without a physical office in the state.²

Federal classification is what matters, not the state of formation. A Delaware LLC taxed as an S corporation with Connecticut-sourced income qualifies just like a Connecticut partnership. Entities exempt from federal income tax and publicly traded partnerships generally fall outside the PTET.

How to Elect the PTET

The election is made annually. To elect for a given year, the entity provides written notice to the Commissioner of Revenue Services no later than the return due date, including extensions. In practice, checking the election box on a timely filed Form CT-1065/CT-1120SI is the standard method, and the Department of Revenue Services treats that as sufficient written notice.²

Once made, the election is irrevocable for that tax year. You can’t amend a return to add it after the fact, and you can’t undo it after checking the box.⁵ Because it resets every year, though, an entity can walk away from the PTET next year if the math changes.

Calculating the Tax

The rate is a flat 6.99% applied to the entity’s Connecticut-sourced income base.¹ Getting to that base starts with federal ordinary business income and applies Connecticut-specific modifications. Common additions include net interest income excluded from federal gross income and state and local income taxes deducted federally. Common subtractions include income from U.S. government obligations and amounts taxable federally but exempt from Connecticut tax.

For entities operating in more than one state, the modified income is apportioned to Connecticut under Connecticut General Statutes Section 12-218.⁶ Most non-manufacturing entities use a single sales factor. Sales of tangible goods are sourced to Connecticut when delivered to a buyer in the state, and service revenue is sourced based on where the benefit is received or where the income-producing activity occurs. The apportioned figure is then multiplied by 6.99%.

For tax years beginning in 2024 and later, entities electing the PTET must use the Alternative Base. That means the tax base is modified Connecticut source income plus the resident portion of unsourced income, with income passed through to corporate members excluded.¹ Pulling in unsourced income attributable to Connecticut-resident owners can raise the tax, but it also raises the credit those residents claim on their personal returns.

Filing and Payment Deadlines

Every pass-through entity doing business in Connecticut or with Connecticut-sourced income must file Form CT-1065/CT-1120SI, regardless of income amount.⁵ Entities electing the PTET check the election box on that same return and file Form CT-PET alongside it.⁴ All filings and payments go through the DRS Taxpayer Service Center electronically.

The return is due on the fifteenth day of the third month after the close of the tax year. For calendar-year entities, that’s March 15. A six-month filing extension is available with Form CT-1065/CT-1120SI EXT, filed by the original due date, which moves the filing deadline to September 15.⁷ The extension covers filing only. Any tax owed is still due by the original deadline, and unpaid balances accrue interest from that date forward.

Estimated Payments

An entity expecting to owe $1,000 or more in PTET for the year must make quarterly estimated payments. The required annual payment is the lesser of 90% of the current year’s liability or 100% of the prior year’s liability (the safe harbor).² Using the prior-year method, cumulative installments are due as follows:

April 15: 25% of prior year tax
June 15: 50% cumulative
September 15: 75% cumulative
January 15: 100% cumulative

Using current-year estimates instead, the cumulative targets at the same dates are 22.5%, 45%, 67.5%, and 90%. The prior-year safe harbor is only available if the entity filed a full twelve-month return for the previous year. When the annual return is filed, estimated payments are trued up; overpayments can be applied to next year or refunded.

Penalties for Late Filing or Payment

Interest runs at 1% per month, or any fraction of a month, on any PTET balance unpaid after the original due date. That applies whether you filed on time and shorted the payment or filed late.⁸ Separate penalties can layer on top:

Late payment or underpayment: 10% of the unpaid tax.
Failure to file, where the Commissioner prepares a return: 10% of the balance due or $50, whichever is greater.
Late filing with no tax due: the Commissioner may impose a $50 penalty.
Willful failure to file or pay: a fine of up to $1,000 or up to one year of imprisonment, on top of other penalties.

These apply to the composite return obligations and to the PTET itself.⁵ Interest and the 10% penalty are separate. An entity that pays six months late faces both 6% in accumulated interest and the flat 10% penalty on the unpaid tax.

The Credit on Your Personal Return

After the entity pays the PTET, each owner’s share of the tax is reported on Schedule CT K-1. Connecticut resident owners claim the credit on Form CT-1040 through Schedule CT-PE, and it appears on Line 20c, grouped with payments and refundable credits rather than with non-refundable credits.⁹

Refundability is the important part. If your share of PTET is $15,000 and your Connecticut income tax after other credits is $11,000, you get the $4,000 back.¹⁰ The PTET should never leave an owner paying more Connecticut tax than they would have owed without it. Verify that the credit on your Schedule CT K-1 matches what you claim on your personal return, because K-1 mismatches are a common audit trigger.

Non-Resident Owners

Connecticut requires every pass-through entity to make composite income tax payments on behalf of non-resident individual members, non-resident trusts, non-resident estates, and members that are themselves pass-through entities.⁵ When the entity handles that composite filing, a non-resident whose only Connecticut income comes from the entity doesn’t need to file a separate Connecticut return.

If the entity does not remit composite payments for a non-resident member, that member has to file Form CT-1040NR/PY themselves.¹¹ Non-resident owners should also check whether their home state gives a credit for Connecticut PTET paid on their behalf. Many do, but the rules differ, and some states have been slow to update their credit provisions for entity-level taxes. The PTET credit itself flows to non-residents the same way it flows to residents: the K-1 share offsets Connecticut liability, and the composite mechanism only decides who files the paperwork.

1
CT.gov. OCG-6 Regarding the Calculation of the Pass-Through Entity Tax
2
CT.gov. Pass-Through Entity Tax Information
3
IRS. Notice 2020-75
4
CT.gov. Form CT-1065/CT-1120SI Instructions
5
CT.gov. Composite Income Tax Information
6
Justia. Connecticut Code Title 12 Chapter 208 – Section 12-218
7
CT.gov. Form CT-1065/CT-1120SI EXT – Application for Extension of Time to File
8
Justia. Connecticut Code Title 12 Chapter 229 – Section 12-735
9
CT.gov. 2024 Form CT-1040 Connecticut Resident Income Tax Return Instructions
10
CT.gov. Form CT-1040 Connecticut Resident Income Tax Return 2024
11
CT.gov. Nonresident and Part-Year Resident Tax Information