How to Make a Connecticut PTET Election: Form CT-PET, the 87.5% Credit, and the End of the Mandatory Tax

Picture a Connecticut architecture firm organized as an S-corporation that filed its 2023 return the way it always had, with the pass-through entity tax paid automatically, and assumed 2024 would work the same way. It will not. For the first time since the tax existed, Connecticut makes the firm choose. Skip the election and the owners lose the one workaround that lets them deduct their state income tax past the federal SALT cap. The firm here is theoretical, not an actual EntityIQ client.

The tax used to be mandatory. Now you have to elect it.

Connecticut got here first. Public Act 18-49, signed May 31, 2018, imposed a 6.99% tax on affected business entities for tax years beginning on or after January 1, 2018, codified at Conn. Gen. Stat. §12-699. It was mandatory, the only entity-level pass-through tax in the nation that every partnership, LLC, and S-corporation had to pay whether they wanted the deduction or not. The IRS blessed the whole structure two years later in Notice 2020-75, which confirmed that a state tax paid at the entity level is deductible by the entity and not subject to the individual $10,000 cap under IRC §164(b)(6).

Then House Bill 6941, enacted as Public Act 23-204 in June 2023, changed the deal. For tax years beginning on or after January 1, 2024, the tax is elective. If you do nothing, your entity is out, and the owners are back to paying Connecticut income tax personally, where the $10,000 SALT cap under IRC §164(b)(6) usually strands it. Connecticut had been the only state in the country whose pass-through entity tax was mandatory, so this is a real change and easy to miss.

How the election works

The election is annual. You make it for each tax year no later than the due date, including extensions, of the entity's return, by written notice to the Commissioner of Revenue Services. Checking the box on a timely filed Form CT-1065/CT-1120SI, the Connecticut Composite Income Tax Return, counts as that written notice. Because it is a fresh choice every year, you can elect in a profitable year and skip a lean one. There is no five-year lockout the way there is when you revoke an S-corp election, and no separate one-page form to mail ahead of time.

The 6.99% rate and the estimated payments

Electing entities pay a flat 6.99% on the Connecticut tax base, the resident portion of unsourced income plus modified Connecticut-source income. If the entity's tax is expected to exceed $1,000, quarterly estimates are required, due the fifteenth day of the fourth, sixth, and ninth months of the tax year and the fifteenth day of the first month after it ends. For a calendar-year filer that is April 15, June 15, September 15, and January 15. You report and pay the tax on Form CT-PET, the Pass-Through Entity Tax Return, which for a calendar-year entity is due the fifteenth day of the third month after year-end, so March 15. A federal extension does not by itself extend the Connecticut return, so file the extension request if you need the extra time.

The 87.5% credit, and why Connecticut is not a clean wash

Here is where Connecticut differs from most states. In Ohio, New Jersey, and Utah, the owner's credit for the entity tax runs close to 100%, so the state side is roughly a wash and the entire benefit of electing is the federal deduction. Connecticut gives its members a credit equal to only 87.5% of their share of the tax under Conn. Gen. Stat. §12-699. The other 12.5% is real Connecticut tax you would not have paid if you never elected. So the Connecticut PTET is not free at the state level. You are trading 12.5% of the state tax for the right to deduct 100% of it on the federal return.

Run it on a theoretical single-owner S-corporation with $300,000 of Connecticut-source income, with the owner in the top federal bracket. The figures are 2026 estimates and rounded.

The net for a high earner: at the 37% federal bracket, deducting $20,970 saves $7,759, the 12.5% credit haircut costs $2,621, and the election clears about $5,138. One caution on the federal side. Because the PTET reduces the entity's ordinary income, it also shaves the §199A qualified business income deduction, so the true federal benefit runs a bit under the straight 37%. For owners well into the top bracket with large Connecticut profits, the election still wins comfortably. For owners whose personal state and local taxes already fit under the 2026 SALT cap of $40,400, the 12.5% leakage can swamp a shrinking federal benefit, and skipping the election is the better answer.

Who should elect and who should skip

Elect if you have substantial Connecticut-source pass-through income, your personal deductions are already past the SALT cap, and you sit in a high federal bracket. Skip if your Connecticut profit is modest, your itemized state and local taxes already fall under $40,400, or the 12.5% credit haircut costs more than the federal deduction saves. Run the numbers each year, because the election resets every January and there is no penalty for sitting out a slow year.

One more distinction worth keeping straight. The PTET election is open to S-corporations, partnerships, and multi-member LLCs alike, so the S-corp question and the Connecticut PTET question are separate decisions. First decide whether S-corp status cuts your self-employment tax, then decide whether to layer the Connecticut PTET on top. If you have not run the first question yet, the EntityIQ S-Corp calculator handles the self-employment tax math, and our guides on the PTET deduction and the $40,000 SALT cap cover the second.

This article is educational and is not legal or tax advice. The numbers above are 2026 estimates, and the firm and owner are theoretical. Please consult a qualified Connecticut CPA before you make or skip the election.