Connecticut LLC Taxes: Pass-Through Income, Federal Elections and the PE Tax
Connecticut LLC Taxes: Pass-Through Income, Federal Elections and the PE Tax
Most owners asking about connecticut llc taxes want one answer: how much will the state take? The honest answer depends on a decision many owners never make on purpose, which is how the LLC is classified for federal tax purposes. That classification decides whether the LLC is a pass-through that reports income on the owners' Connecticut returns, or a corporation that pays the Corporation Business Tax. This guide walks through the rules you are most likely to face, the federal elections that change the result, and the optional pass-through entity (PE) tax.
This is informational content, not legal or tax advice. Your result depends on your ownership, income and filing history. Confirm your position with a qualified CPA or tax attorney before you file or make any election.
Connecticut Has No LLC Franchise Tax
Start with the simplest point. Connecticut does not impose an annual franchise tax or privilege tax on LLCs. The LLC does pay an annual filing fee to the Secretary of the State: the Annual Report costs $80 and is required every year. That fee is an administrative charge, not a tax on income, and it is due whether the LLC made money or not.
The income tax picture is different. Your LLC's federal classification sets the Connecticut treatment, and the two regimes below are very different in cost.
How a Default LLC Is Taxed in Connecticut
An LLC that has made no election is a pass-through for Connecticut income tax purposes. That applies to a single member LLC and to a multi-member LLC. The entity does not pay a Connecticut income tax on its profit. Instead, the profit or loss passes through to the members, and each member reports their share on their own Connecticut personal income tax return. Connecticut's personal income tax is progressive, with seven brackets ranging from 2% to 6.99%.
Federally, the default rules work like this. A single member LLC is disregarded, so its income is reported on the owner's Schedule C with Form 1040. A multi-member LLC is treated as a partnership, files Form 1065 and issues a Schedule K-1 to each member. Connecticut generally follows the federal classification, so a change at the federal level usually changes the state treatment too. Confirm that for your facts with your CPA.
For a connecticut single member llc, this default is usually the cheapest outcome. There is no entity level income tax, so the business's profit is taxed once, on the owner's return.
Federal Elections That Change the Connecticut Answer
Two federal elections matter most for Connecticut purposes:
- Form 8832 (Entity Classification Election). An eligible LLC can elect to be classified as an association taxable as a corporation. Once it does, the LLC is treated as a corporation for federal purposes and, in Connecticut, pays the Corporation Business Tax.
- Form 2553 (Election by a Small Business Corporation). An eligible LLC can elect S corporation treatment. An LLC taxed as an S corporation is one of the entity types eligible for the Connecticut PE tax election, which is a major reason owners file Form 2553.
Each election has its own eligibility rules, deadlines and consequences, and some are difficult to reverse. Do not treat either form as a routine paperwork step. Model the Connecticut result with your CPA before you file. Connecticut's treatment of an S corporation LLC, including whether any corporate minimum applies to it, is a detail to confirm directly with the Department of Revenue Services (DRS) or your CPA.
Pass-Through Income: What the Owner Reports
When the LLC is a pass-through, the owner's job is to report the LLC's profit correctly on both the federal return and the Connecticut return. A few practical points follow from that:
- Taxable regardless of withdrawals. A pass-through member generally reports their share of profit whether or not the money was distributed to them.
- Separate books matter. Keep the LLC's bank account, bookkeeping and tax records separate from personal funds so the allocation of income is clear at filing time.
- Nonresident members. An owner who lives outside Connecticut may still have a Connecticut filing obligation if the LLC earns Connecticut source income. Check the requirement with DRS or your CPA.
The Corporation Business Tax for Corporate-Taxed LLCs
An LLC treated as a corporation pays the Corporation Business Tax instead of passing income to its owners. The main components are summarized below.
| Component | What it means for an LLC |
|---|---|
| Base tax | 7.5% of apportioned net income, with a $250 minimum |
| Capital base tax | Being phased out: 0.16% of the capital base for income years beginning in 2026, 0.11% for 2027 and none from 2028 (CGS 12-219). It applies only when it is larger than the income-based tax. Check the current CT-1120 instructions on DRS before you budget. |
| Surtax | 10% for companies with total income of $100 million or more, measured on federal Form 1120, line 11, or companies that file as part of a combined unitary group |
Apportionment means the state taxes only the share of net income attributed to Connecticut under the apportionment rules. Most small LLCs will not reach the $100 million surtax threshold, but a corporate-taxed LLC that belongs to a larger combined group should confirm whether the surtax applies to it.
The corporate route makes sense only in specific situations, usually when a federal corporate classification serves a business purpose that outweighs the added state tax. Do not elect it simply because it sounds more professional.
The Optional Pass-Through Entity (PE) Tax
Connecticut offers an optional Pass-Through Entity tax, available for tax years beginning on or after January 1, 2024. An LLC taxed as a partnership or an S corporation may elect it. Under the election, the entity pays the tax itself rather than each owner paying it individually on their personal return, and the owners receive a credit against their personal income tax.
The DRS Form CT-PET instructions set the entity-level rate at 6.99% and the owner credit at 87.5% of the tax paid. Rates and credit rules can change, so check the DRS pass-through entity tax forms page for the current CT-PET rules, including how they apply to your situation. The official DRS site is portal.ct.gov/drs.
Several features of the PE tax deserve attention:
- The election is made each year. It is annual and, for that tax year, irrevocable. Owners should decide on it as part of each year's tax planning, not once and forever.
- It is a planning tool, not an automatic saving. Whether the PE tax lowers your total tax depends on your personal income, your other state and local tax deductions on the federal return, and the owner credit mechanics. Ask your CPA to model both paths.
- Eligibility depends on federal classification. A default LLC taxed as a partnership or an S corporation can elect it. An LLC taxed as a corporation pays the Corporation Business Tax and is handled differently.
Other Costs That Are Not Income Tax
Income tax is only part of the picture. The items below apply to many Connecticut LLCs regardless of the income tax election.
- Annual Report. The Secretary of the State requires an Annual Report every year at a fee of $80. By statute (CGS 34-247k), an LLC files its Annual Report between January 1 and March 31 each year, starting the year after it forms. Business.CT.gov shows each entity its own due date in its account, so check yours at business.ct.gov.
- Sales and use tax. The state sales tax rate is 6.35%. A business selling taxable goods or services must obtain a Sales and Use Tax Permit from DRS, which carries a $100 registration fee, and must display the permit at each location. Details are at the DRS sales tax information page.
- Town property tax. Local property tax is separate from every state tax discussed here. Business personal property and real estate may be taxed at the town level. Confirm your filing requirements and rates with your town assessor.
- Registered agent. Your LLC must keep a registered agent in Connecticut at a usual place of business that is open during normal hours. A post office box or commercial mailbox does not qualify. Agent fees vary by provider, so confirm the price directly before you buy the service.
- Trade name. If the business operates under a name other than its registered LLC name, file a Trade Name Certificate with the town clerk of the town where the business is primarily transacted. The fee is $20, and the filing goes to the town, not the state.
Connecticut has no general state business license. Licenses are issued by trade, such as the Department of Consumer Protection, the Department of Public Health or the Insurance Department, and local zoning and health approvals may also apply. Those requirements are separate from the tax rules in this guide.
Questions to Confirm Before You File
Use this list as a starting point for your conversation with DRS or your CPA:
- What is my LLC's federal classification today, and do I need Form 8832 or Form 2553 to change it?
- Does the PE tax make sense for me this year, and what are the current CT-PET rules and election steps?
- If my LLC is taxed as a corporation, what is the current capital base tax under the CT-1120 instructions?
- Does the 10% surtax apply, given my total income or any combined unitary group?
- Do I need a Sales and Use Tax Permit for what I sell?
- What town personal property or real estate filings does my town require?
Official Sources
- Connecticut Secretary of the State, Business Services Division: portal.ct.gov/sots/business-services/bsd
- Business.CT.gov forms and fees: business.ct.gov/business-services/business-forms-and-fees
- Business records search (free name check): service.ct.gov/business/s/onlinebusinesssearch
- Connecticut Department of Revenue Services: portal.ct.gov/drs
Connecticut LLC tax rules change with the state budget and with federal law, so treat any figure in this guide as a starting point and verify it on the agency page before you act. If your LLC has more than one owner, operates in several states, or is considering a federal election, get professional advice before you decide.
Disclaimer: This Resource Guide is informational content about Connecticut LLC taxes. It is not legal, tax or accounting advice, and it does not create an attorney-client or CPA-client relationship. Consult a qualified CPA or tax attorney about your specific situation.