Connecticut 6.99% Pass-Through Entity Tax (PTET) & 87.5% Credit Guide (2026): LLC, S-Corp & Partnership SALT Strategy
Calculate your net federal SALT savings under Connecticut’s 6.99% Pass-Through Entity Tax (PTET) and the 87.5% personal tax credit (Form CT-1065/CT-1120SI) for 2026.
By Pablo Cirre Gómez and East Corp Capital Quantitative Desk
Connecticut made tax history in 2018 as the very first state in the nation to enact a Pass-Through Entity Tax (PTET) under C.G.S. § 12-699 to bypass the $10,000 federal SALT deduction cap—andfollowing recent legislative reforms moved the regime from mandatory to elective starting in 2024–2026. Yet unlike New York State’s PTET (which grants a 100% dollar-for-dollar personal tax credit), Connecticut grants partners and S-Corp shareholders only an 87.5% personal income tax credit on Form CT-1040. Understanding the exact math between that 12.5% state credit haircut (0.87375% of income) and your 32%–37% federal tax deduction is essential for every Fairfield, Hartford, and New Haven County business owner.
LLC vs. S-Corp Self-Employment & NY PTET Tax Savings Calculator
Compares single-member LLC self-employment tax (15.3%) against an S-Corp reasonable salary split plus the New York Pass-Through Entity Tax (PTET) federal SALT bypass.
The Exact Math of Connecticut’s 6.99% PTET and 87.5% Credit Haircut
When a Connecticut LLC (taxed as a partnership or S-Corp) earns $500,000 in net business profit and elects into the Connecticut PTET on Form CT-1065/CT-1120SI, the entity pays a flat 6.99% entity-level tax of $34,950. Under IRS Notice 2020-75, that entire $34,950 is deducted above the line on the federal partnership or S-Corp return—saving a 37%-bracket owner $12,931.50 in federal income tax.
On the owner’s personal Connecticut return (Form CT-1040 Schedule CT-PE), Connecticut grants a refundable credit equal to 87.5% of the PTET paid ($30,581.25) against the owner’s $34,950 personal CT tax liability—leaving a residual $4,368.75 state tax balance (“the 12.5% haircut”). Subtracting the $4,368.75 state haircut from the $12,931.50 federal tax savings yields a net out-of-pocket cash tax savings of $8,562.75 per $500,000 of profit (1.71% net rate reduction).
2026 Town-by-Town & Jurisdiction Benchmark Table
| Municipality / Jurisdiction | 2026 Rate / Ratio | Effective Tax / Cost | Key Statutory & Commuter Note |
|---|---|---|---|
| CT PTET Statutory Tax Rate | 6.99% Flat Rate | Matches Connecticut’s top marginal individual income tax rate | C.G.S. § 12-699 |
| Personal CT-1040 Tax Credit Percentage | 87.50% of PTET Paid | Reduced from original 93.01%; creates 0.87375% state haircut | C.G.S. § 12-699(g) |
| Federal Ordinary Business Deduction | 100% Deductible | Deducted on federal Form 1065 / 1120-S Line 12/14 | IRS Notice 2020-75 |
| Standard Base vs. Alternative Base | 2 Election Methods | Alternative Base taxes only resident + CT-sourced individual shares | Form CT-1065/CT-1120SI |
Standard Base vs. Alternative Base: Crucial Strategy for Multi-State NY/CT Partnerships
If your Greenwich or Stamford advisory firm, medical practice, or investment partnership has both Connecticut resident partners and New York resident partners, always elect the Alternative Base method on Form CT-1065/CT-1120SI. The Alternative Base computes the 6.99% CT PTET only on (1) CT-sourced income plus (2) unsourced/non-CT income allocable directly to Connecticut resident individual partners—preventing non-resident partners from paying the 12.5% CT credit haircut on income sourced outside Connecticut.
Frequently Asked Questions & Statutory Rules (2026)
Is the Connecticut Pass-Through Entity Tax (PTET) mandatory or optional in 2026?
Following Connecticut’s legislative reform (Public Act 23-204), the Connecticut PTET transitioned from a mandatory tax to an optional annual election starting with the 2024 tax year and continuing in 2026. Entities elect in by checking the box on Form CT-1065/CT-1120SI or making timely PTET estimated payments.
Does a Connecticut owner in the 24% or 35% federal bracket still come out ahead despite the 87.5% credit haircut?
Yes! Because the 12.5% credit haircut equals 12.5% of 6.99% (0.87375% of income), any business owner in the 22%, 24%, 32%, 35%, or 37% federal bracket saves between 1.54% and 2.59% at the federal level—beating the 0.87% state haircut by roughly 2-to-1 or 3-to-1.
Does New York State allow a resident credit (Form IT-112-R) for Connecticut PTET paid by a NY resident partner?
Yes. Because Connecticut’s PTET is substantially similar to New York’s Article 24-A PTET, New York resident partners in a CT-operating partnership can claim a resident tax credit on NYS Form IT-112-R for their share of CT PTET paid on CT-sourced income (after adding the CT PTET back to NYS income).
What if my 87.5% CT PTET credit exceeds my total Connecticut personal income tax liability?
In Connecticut, the 87.5% PTET credit on Schedule CT-PE is 100% refundable to individual taxpayers—meaning if your effective CT individual tax rate is lower than 6.116% (87.5% × 6.99%), the CT Department of Revenue Services refunds the excess credit in cash.