Connecticut's Pass-Through Entity Tax Is Optional Now: Should Your LLC or S Corp Elect, and How CT-PET Works

2026-10-10 · RKube Services

Connecticut's pass-through entity tax is optional since 2024. How CT-PET works, the 6.99% rate and 87.5% credit, who should elect, and the deadlines for Hartford and Stamford LLCs and S corps.

For tax years 2018 through 2023, Connecticut's pass-through entity tax wasn't a choice. Every partnership, multi-member LLC and S corporation with Connecticut income paid it. Starting with tax years beginning on or after January 1, 2024, the tax became optional. Each year, the business decides whether to elect it, and once it does, that year's election is irrevocable.

That changes the conversation for owners in Hartford, Stamford, New Haven and across the state. The question used to be "how do we file CT-PET?" Now it's "should we?" This guide walks through how the tax works today, who tends to benefit, who doesn't, and the deadlines you need to hit either way.

How the Connecticut PE tax works in 2024 and later

The Connecticut DRS pass-through entity tax page and the CT-PET instructions lay out the mechanics:

• Who can elect. Partnerships (general, limited and LLPs), LLCs taxed as partnerships, and S corporations with Connecticut-source income.
• How you elect. Check the box on a timely filed Form CT-1065/CT-1120SI, the Connecticut Composite Income Tax Return, by its due date or extended due date. Checking that box counts as the written notice DRS requires.
• Annual and irrevocable. You choose every year. You can elect for 2025 and skip 2026. But after you elect for a year, you can't undo it for that year.
• The rate. The tax is 6.99% of the PE's income subject to tax, per Part 1, Schedule A of Form CT-PET.
• The base. Income subject to tax is the entity's Connecticut-source income, plus the share of unsourced income that belongs to Connecticut resident members. A Connecticut resident's full share is effectively in the base; a nonresident's share is only the Connecticut-source part.
• The member credit. Each member gets a credit equal to 87.5% of their share of the PE tax, which they claim on their own Connecticut return.
• Filing and paying. Form CT-PET is due the 15th day of the third month after year end, which is March 15 for a calendar-year entity. It must be filed and paid electronically.

Why anyone would elect: the federal SALT deduction

The PE tax exists for one reason: the federal cap on the state and local tax (SALT) deduction for individuals. When the entity pays state tax, it deducts that tax as a business expense, which reduces the income flowing to the owners' federal returns. The cap doesn't apply at the entity level. In effect, the owners get a federal deduction for state tax they couldn't otherwise deduct.

The 2025 federal tax law raised the individual SALT cap to $40,000 for many filers, starting with 2025, but the higher cap shrinks for people with modified adjusted gross income over $500,000 and falls back to $10,000 once income reaches roughly $600,000. That matters for the decision. For a Connecticut owner earning $250,000, the higher cap may now cover all their state and property taxes, and the PE tax adds little. For a Stamford fund partner earning $900,000, the cap is still $10,000, and the PE tax is as valuable as ever.

The 12.5% gap: why electing has a cost

Here's the part that makes Connecticut different from many states. The member credit is 87.5% of the PE tax, not 100%. For a Connecticut resident whose income is already taxed at the top personal rate, the election adds roughly 12.5% of the PE tax on top of their state tax.

So electing has a known state cost and a federal benefit that depends on each owner's situation. The decision is a comparison, not an automatic yes.

A simplified worked example

Take a two-member Hartford consulting LLC with $400,000 of Connecticut income, split evenly. Both members are Connecticut residents in a high bracket, and assume the SALT cap is fully binding for both (their other state and property taxes already use it up). This example ignores the Connecticut addback rules, phase-outs and other modifications, so treat it as directional.

On those assumptions, electing wins clearly. Change the assumptions and the answer moves:

• If both members are under the income range where the $40,000 SALT cap still applies and their personal state taxes fit inside it, the federal saving shrinks or disappears, and the 12.5% gap makes electing a loss.
• If one member is a nonresident with little Connecticut income, the PE tax on their share is smaller, but so is everything else; the effect on that member depends on their home state's rules for credits.
• If a member is a corporation, the logic is different again, since corporations aren't subject to the individual SALT cap.

Who usually benefits, who usually doesn't

Often worth electing

• Owners whose income is well above the SALT cap phase-down range, where the cap is $10,000.
• Professional practices, consulting firms and investment partnerships in Fairfield County with a few high-income resident partners.
• S corporations whose shareholders already pay large property taxes that use up the cap.

Often not worth electing

• Owners whose total state and local taxes now fit under the $40,000 cap.
• Entities with members in very different situations, where one person's benefit is another's cost. The election is entity-wide.
• Businesses with a loss year. If income subject to tax is zero or less, the PE tax is zero, and there's nothing to gain.

Needs a closer look

• Nonresident members, especially in New York or Massachusetts, who need their home state to recognize the Connecticut credit.
• Members who might move in or out of Connecticut during the year.

Deadlines if you elect

The estimate rule is the trap. If you think you'll elect for 2026, the April and June 2026 installments come due before most owners have even talked about it. Underpaid estimates draw interest, calculated on Worksheet CT-2210PE. Some businesses pay estimates as a hedge and then decide not to elect; ask your preparer how any overpayment would be applied before you rely on that approach.

How to make the decision each year

1. By early spring, project the year's Connecticut income and each member's expected income range.
2. For each member, estimate whether the SALT cap is binding: compare their other state and property taxes to the cap that applies at their income.
3. Run both versions with your preparer: elected and not elected, for each member.
4. If it looks like a yes, start CT-PET ES payments on schedule.
5. Make the final call when filing CT-1065/CT-1120SI, by the due date or extended due date, and document the decision and the numbers behind it.
6. Tell every member in writing what was decided, since the credit and the federal effect show up on their own returns.

Common questions about the Connecticut PE tax

Is CT-PET still mandatory for anyone? No. For tax years beginning on or after January 1, 2024, the PE tax is optional for every eligible entity.

Can a single-member LLC elect? A single-member LLC that's disregarded for federal tax isn't a separate pass-through entity for this purpose. DRS has separate guidance on disregarded entities owned by a pass-through entity, so check it if your structure has layers.

Does electing mean members don't file Connecticut returns? Not necessarily. Members claim the credit on their own Connecticut returns, so residents still file, and many nonresidents will too.

What's the rate for 2025 and 2026? The 2024 CT-PET instructions set it at 6.99%. Confirm it on the current year's form when DRS posts it.

We missed the election. Can we elect late? The election is made on a timely filed CT-1065/CT-1120SI, including extensions. After that, it's gone for the year.

Get the Connecticut decision made with real numbers

RKube Services handles bookkeeping and tax prep for small businesses across the US and Canada, including partnerships, LLCs and S corporations in Hartford, Stamford and the rest of Connecticut. We keep your books current so the PE tax decision is based on actual year-to-date income, not a guess in March. Start with a free scoping call and a 30-day trial: call (984) 234-7030 or reach us through rkubeservices.com.