Overview of the Pass-Through Entity Tax (PTET)
The new PTE tax imposed by Connecticut will apply to S corporations, partnerships, and limited liability companies (LLCs) treated as partnerships for federal income tax purposes. In June 2023, Connecticut Governor Ned Lamont signed into law HB 6941, which included changes to the Connecticut Pass-Through Entity Tax (“CT PTET”) effective for tax years beginning in 2024.
Key Highlights:
- The CT PTET is effective for tax year 2024.
- The CT PTET will be optional rather than mandatory and will be an annual election due on the date of the return.
- An electing pass-through entity (“PE”) will be required to use the alternative base to calculate the PE’s taxable income.
Tax Rates and Calculations
- The PTET rate of 6.99% is applicable to both the standard base and the alternative base.
- The standard base is determined by subtracting the CT source income from subsidiary PTEs that filed a CT PTET return from the PTE’s CT source income.
- The alternative base is calculated as the combination of modified CT source income and the resident portion of unsourced income.
Additional Changes to PTET
Additional PTET changes include:
- Changing the method for calculating the tax base.
- Eliminating the corporation tax credit for PTETs paid.
- Reimposing a requirement that pass-through entities file a nonresident composite income tax return and pay the tax on behalf of nonresidents.
Frequently Asked Questions
Is PTET mandatory in CT?
Starting in 2024, the PTET will be optional in Connecticut.
What is Connecticut alternative base PTE?
The alternative base combines modified CT source income and the resident portion of unsourced income.
The new law requires PEs to use the alternative base at the current 6.99% tax rate. PTEs can no longer file a combined return.
Filing Requirements for Nonresidents
Nonresidents generally don’t file a CT return if the PTET credit satisfies their liability or the PTE filed Schedule CT-NR. However, they must file if the liability wouldn’t be satisfied and the PTE didn’t make a composite remittance.