In order to attempt to circumvent the recently enacted Internal Revenue Code $10,000 limitation on individuals deducting state and local income or property taxes (“SALT”), the Connecticut legislature has enacted an entity level tax on the taxable income of pass-through entities such as non-public partnerships, S Corporations and LLC’s. The rate of the new Connecticut tax is 6.99%. The tax is fully deductible by the entity on its federal income tax return. Moreover, the amount of such tax is subject to Connecticut estimated tax payment requirements. As such, for 2018, eligible pass-through entities are advised to address this new law prior to the next quarterly estimated tax payment date on June 15.

This entity level tax is offset by a personal or corporate (if there is a corporate member) refundable income tax credit to the individuals or corporations who or which are otherwise responsible for taxes on the pass-through entity’s income. The credit is equal to the taxpayer’s portion of 93.1% of the entity level tax. In the case of corporate members, this credit is to be applied after all other credits. The pass-through entity tax credit is not subject to the corporation business credit cap and unused credits may be carried forward indefinitely, until fully used.

For more information, contact any of the following Halloran & Sage business attorneys:

Henry M. Beck, Jr.

Joseph Biraglia

Robert B. Cox

Brian G. Enright

James P. Maher

Brad N. Malicki

Richard P. Roberts

Suzanne M. Scibilia

Matthew L. Teich

Michael S. Wrona

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1 Although beyond the scope of this brief summary, there is permissible use of an alternative tax base to reflect non-Connecticut resident members or shareholders.