In response to the Federal “Tax Cuts and Jobs Act”, and its limitation on the deductibility of State and Local Taxes, the State of Connecticut legislature passed, and the governor signed a bill on May 31, 2018, that changes the Connecticut taxation of partnerships (including multi-member LLC’s) and S-Corporations (pass-through entities). Effective for tax years beginning on or after January 1, 2018, pass through entities are now subject to State of Connecticut tax at a flat rate of 6.99%.
In addition, the partner/shareholder would then get a credit for taxes paid by the entity on their share of the income. Beginning with the 2018 tax year, the pass-through entity is required to make estimated payments. Typically, estimated payments would be due as follows: 4/15/18, 6/15/18, 9/15/18 and 1/15/19, and reduce the payment requirements for the individual partner/shareholder. In addition, under prior law, pass through entities with non-resident owners were required to pay a tax at a rate of 6.99% on the income allocated to these owners, with the actual tax payment due with at the filing date of the return. This bill now requires that the non-resident withholding tax also be paid in estimated installments throughout the year.
Due to the many uncertainties and guidance that has not yet been issued, please continue to make any estimated payments that we have previously provided to you. The Department of Revenue Services has notified us that they will be providing some relief options regarding the classification of estimates, including the ability to apply estimates paid by owners of pass-through entities to the Partnership/S-Corp.
We will continue to monitor this new legislation and keep you informed of updates. Please contact us if you have any questions.