Connecticut enacted a new pass-through entity (PET) income tax that is taxed at the top personal income tax rate and is offset by a credit at the personal or corporate income tax rate.

 

This new tax requires pass-through entities to pay at the entity level. This is Connecticut’s way of providing relief from the $10,000 federal limit that is imposed on state and local tax deductions.

 

The PET tax is imposed on partnerships, S corporations, and LLCs. There are several ways to calculate the PET, and those are as follows:

 

  • Separately and non-separately computed items under the IRC
  • Derived from or connected to Connecticut sources as determined by the sourcing rules that are currently applied to the Connecticut income tax
  • Adjusted by applicable Connecticut state modifications
  • Multiplied by 6.99%

 

If the calculation results in a loss, the entity may carry forward until it is utilized fully.

 

Credits and Overpayments

All those, whether individuals or corporate members, of affected business entities are entitled to have an offsetting credit against their respective taxes. The credit is 93.01% of the member’s direct and indirect pro rata share of the tax paid. Any portion of the credit that exceeds the tax liability is then treated as an overpayment.

 

The above information is of a general nature only and should not be relied upon for specific situations. Click here for additional tax services information.

Call Marlies Y Hendricks CPA PLLC at either 716-694-3500 or 910-769-8730 as required to set up an appointment.