CT Enacts Pass-Through Entity Tax
On May 31, 2018, Governor Malloy signed Public Act 18-49, which has a direct impact on how Connecticut taxes partnerships and S corporations (known as pass-through entities). The new law, approved unanimously by both chambers of the General Assembly, was enacted in response to the Federal Tax Cuts and Jobs Act (known as TCJA enacted in December 2017).
The Federal TCJA passed on December 2017, sets a limit of $10,000 on deductions for property, state and local income taxes (known as SALT). As a result, Act 18-49 was designed to counteract the effects of the federal tax changes on Connecticut owners/partners of pass through entity businesses.
The change in law now requires pass-through entities to make timely estimated tax payments on the partners/owners, behalf, rather than the partners/owners themselves.
This ensures the pass through entity is not taxed twice, partners will receive a tax credit on their personal Connecticut returns.
Pass-Through Entity Terms
The changes are in place for the 2018 tax year, beginning January 1st, 2018. Estimated payments for entities filing for the calendar year are due on April 15, 2018, June 15, 2018, September 15, 2018, and January 15, 2019.
Realizing the pass-through entity tax was passed after April 15th; entities may submit their 2018 payment requirements by:
• Making a “catch-up” payment
• Making estimated payments that equal the amount due, or
• Annualizing their estimated payments for the taxable year
The Department of Revenue Services will also permit pass-through entities to re-characterize all, or some, of estimated payments made by individual partners, with the partners consent. The payments will then be applied to the entity’s 2018 estimated payment requirements. The re-characterization of the estimated payments must be completed by December 31, 2018.
What Should I Do Now?
A. Call Innovative Tax & Accounting for guidance, or
B. Calculate your estimated payment due, and mail a check and coupon to the DRS. To get a coupon, visit the DRS website here