Connecticut LLC Tax Elections — PET, S-Corp & C-Corp

Connecticut offers unique tax election options, most notably the Pass-Through Entity Tax (PET) that bypasses the federal SALT cap. Combined with S-corp election for self-employment tax savings, Connecticut LLC members can significantly optimize their total tax burden. For the full tax picture, see our tax guide. For formation, see our LLC guide.

Available Elections

CT Pass-Through Entity Tax (PET)

Connecticut's signature LLC tax advantage:

• Enacted 2018 (first state to implement this workaround)
• LLC pays CT income tax at entity level (6.99% flat)
• Members receive dollar-for-dollar credit against personal CT tax
• Entity payment is federally deductible as business expense (no SALT cap)
• Available to: multi-member LLCs AND single-member LLCs (CT expanded eligibility)

Filing: CT Form CT-1065/CT-1120SI, due March 15

S-Corp Election

Same concept as other states — split income into salary + distributions to save SE tax:

• File Form 2553 with IRS
• Pay reasonable salary (subject to employment taxes)
• Take distributions (no SE tax)
• Must run CT payroll (withhold CT income tax)
• Savings: $5,000-$15,000+/year depending on income level

Combining PET + S-Corp

For Connecticut LLC members earning $150K+:

1. S-corp election saves SE tax on distributions (~$7,000-$15,000)
2. PET election makes CT income tax fully deductible federally (~$3,000-$10,000 additional federal savings)
3. Combined savings: $10,000-$25,000+/year at higher income levels

This combination makes Connecticut one of the most tax-efficient states for high-earning LLC members despite its relatively high nominal tax rates.

FAQ

Is the PET mandatory?

No — purely elective. But for members with CT income above the SALT cap threshold ($200K+), it's almost always beneficial.

Can single-member LLCs use the PET?

Yes. Connecticut expanded PET eligibility to include single-member LLCs (treated as sole proprietorships federally), unlike some states that restrict it to partnerships only.

When should I make these elections?

PET: elected annually by the entity's return due date. S-corp: within 75 days of formation or by March 15 for the current year. They can be combined in the same tax year.