How Connecticut Taxes LLCs in 2025
Connecticut imposes a relatively complex LLC tax structure that includes graduated income tax rates from 3% to 6.99%, a $250 annual Business Entity Tax (BET), and a mandatory Pass-Through Entity Tax (PET) that was enacted as a SALT cap workaround. Understanding all three components is critical for Connecticut LLC owners.
LLC income passes through to members' personal Connecticut tax returns and is taxed at graduated rates across seven brackets. Connecticut does not offer a standard deduction but provides personal exemptions that phase out at higher income levels.
Important: Connecticut is the first state to make its Pass-Through Entity Tax mandatory rather than elective. All qualifying pass-through entities, including LLCs, must pay the PET at 6.99% on Connecticut-source income, with members receiving a corresponding credit.
Connecticut Income Tax Brackets (2025)
| Taxable Income (Single) | Tax Rate |
|---|---|
| $0 - $10,000 | 3% |
| $10,001 - $50,000 | 5% |
| $50,001 - $100,000 | 5.5% |
| $100,001 - $200,000 | 6% |
| $200,001 - $250,000 | 6.5% |
| $250,001 - $500,000 | 6.9% |
| Over $500,000 | 6.99% |
Connecticut also applies a recapture tax for high-income earners. If your Connecticut AGI exceeds certain thresholds, a portion of the tax benefit from lower brackets is recaptured, effectively increasing the marginal rate.
Connecticut Business Entity Tax (BET)
All LLCs registered or doing business in Connecticut must pay the $250 annual Business Entity Tax:
- Amount: $250 per year (flat fee)
- Due date: April 15 annually
- Filing: Paid online through the Connecticut Department of Revenue Services (DRS)
- Applies to: All LLCs, regardless of income level or activity
- Not deductible against PET: This is a separate obligation from income tax
Connecticut Pass-Through Entity Tax (Mandatory PET)
Connecticut's PET is unique because it is mandatory, not elective. Key details:
- Rate: 6.99% on the entity's Connecticut-source income
- Who pays: The LLC pays at the entity level
- Member credit: Members receive a 87.5% credit on their individual Connecticut returns (the remaining 12.5% is a net tax increase)
- Federal treatment: The PET is deductible as a business expense, bypassing the $10,000 SALT cap
- Estimated payments: Required quarterly
- Effective date: Mandatory for tax years beginning on or after January 1, 2024
SALT Cap Workaround: The mandatory PET at 6.99% allows the state income tax to be deducted at the entity level for federal purposes. Members receive an 87.5% credit, meaning the net cost is 12.5% of the PET amount, but the federal deduction benefit can outweigh this cost for many LLC owners.
Federal Taxes for Connecticut LLCs
- Self-Employment Tax: 15.3% (12.4% SS + 2.9% Medicare + 0.9% Additional Medicare Tax above thresholds)
- Federal Income Tax: 10% to 37% based on filing status and total taxable income
- QBI Deduction: Up to 20% of qualified business income
- SALT Deduction: Capped at $10,000 for individual returns (but PET provides a workaround)
Connecticut Sales and Use Tax
- State sales tax: 6.35%
- Luxury tax: 7.75% on certain items (jewelry, clothing over $1,000, motor vehicles over $50,000)
- Clothing exemption: Clothing and footwear under $100 is exempt from sales tax
- No local sales tax: Connecticut does not allow local jurisdictions to add sales tax
- Grocery food: Exempt from sales tax
Connecticut LLC Formation and Annual Costs
- Certificate of Organization: $120
- Business Entity Tax: $250 annually
- Annual Report: Not required for LLCs (only for corporations)
- Registered Agent: Not required in Connecticut, but an agent for service of process is needed
Connecticut Employment Taxes
- Unemployment Insurance: 1.9% to 6.8% on the first $25,000 of wages (new employer rate: 3.0%)
- Paid Family and Medical Leave (PFML): 0.5% of wages, employee-paid
- Workers' Compensation: Required for most employers
- Employer payroll tax: Connecticut does not impose a separate employer payroll tax beyond UI
Connecticut LLC vs. Neighboring States
| State | Top Income Rate | Entity Tax/Fee | Sales Tax |
|---|---|---|---|
| Connecticut | 6.99% | $250 BET + PET | 6.35% |
| New York | 10.9% | $25-$4,500 | 4% + local |
| Massachusetts | 9% (5% + 4% surtax) | $500 | 6.25% |
| Rhode Island | 5.99% | $50 | 7% |
| New Jersey | 10.75% | $0 | 6.625% |
| New Hampshire | 0% (5% on interest/dividends) | $100 | 0% |
Filing Deadlines for Connecticut LLCs
- Individual return (Form CT-1040): April 15
- Partnership return (Form CT-1065): March 15 for multi-member LLCs
- PET return (Form CT-1065/CT-1120 SI): March 15 or April 15 depending on entity type
- Business Entity Tax: April 15 annually
- Estimated payments: April 15, June 15, September 15, January 15
Common Mistakes Connecticut LLC Owners Make
- Not understanding the mandatory PET: Unlike most states where the PTET is elective, Connecticut's is mandatory. Failing to pay the PET at the entity level will result in penalties.
- Forgetting the $250 BET: The Business Entity Tax is separate from income tax and must be paid even if the LLC has no income.
- Miscalculating the PET credit: Members only receive 87.5% of the PET as a credit, not 100%. The remaining 12.5% is a net cost.
- Ignoring the recapture tax: High-income earners may be subject to bracket recapture, increasing their effective rate.
- Missing estimated PET payments: The PET requires quarterly estimated payments at the entity level.
Tax Strategies for Connecticut LLC Owners
- Leverage the PET for federal savings: The mandatory PET, while adding some state-level cost, provides a significant federal SALT deduction benefit
- Maximize retirement contributions: SEP IRA or Solo 401(k) to reduce both federal and state taxable income
- QBI Deduction: Ensure you qualify for the full 20% qualified business income deduction
- Consider S-Corp election: For high-income LLCs, S-Corp election can reduce self-employment tax
- Track all business deductions: Connecticut starts with federal AGI, so federal deductions directly reduce state liability
- Plan for the recapture: If your income approaches recapture thresholds, consider timing strategies