The state Department of Revenue Services has issued guidelines on the new pass-through entity tax contained in Public Act 18-49, which Governor Dannel Malloy signed into law May 31.

The new law fundamentally changes how the state taxes income earned by partnerships and S corporations, collectively known as pass-through entities, for federal tax purposes.

The act represents the state's effort to neutralize some negative impacts of federal tax changes on Connecticut residents and, specifically, owners and partners of pass-through entity businesses.

It accounts for the requirement that a pass-through entity pay taxes on its own income by providing a tax credit that partners may claim on their Connecticut income tax returns and corporate business tax returns—in many cases, equal to the amount of the tax.

The credit's intent is to ensure that a pass-through entity's income is not taxed twice.

Starting with the 2018 tax year, pass-through entities will be taxed on their own income, known as the pass-through entity tax, and are required to make estimated payments against their tax liability.

Estimated Payments Schedule

Estimated payments for entities that file for the calendar year are due April 15, 2018, June 15, 2018, September 15, 2018, and Jan. 15, 2019.

In general, the law requires that each estimated payment equal 22.5% of the entity's tax liability.

The bill recognizes that the pass-through entity tax did not become law until after April 15, the date the first estimated yearly payment is due, and provides steps for pass-throughs to comply with payment requirements.

DRS will allow pass-through entities to recharacterize some or all of any estimated payments made by any of their individual partners.
They can:

  • Make a catch-up payment with the June 15 estimated payment that satisfies the first and second estimated payment requirements
  • Make three estimated payments on June 15, Sept. 15 and Jan. 15, 2019, each equal to 22.5% of the tax liability with the full amount of the tax remaining due by the return date
  • Annualize estimated payments for the taxable year

DRS Guidance on 2018 Estimated Pass-Through Entity Tax Payments

Payment Recharacterization

DRS will also allow pass-through entities to recharacterize some or all of any estimated payments made by any of their individual partners on April 15, June 15, or Sept. 15, 2018, with partner consent, so the payments are applied against the entity's 2018 estimated payment requirements.

The recharacterization of these estimated payments must be finished by Dec. 31, 2018. DRS will provide information by Sept. 30 about the mechanism to recharacterize these estimated payments.

A pass-through entity may make its June 15 estimated payment by completing an estimated tax payment coupon and mailing it with a check to DRS.

The coupons are available at the DRS website.

For the Sept. 15 estimated payment, pass-through entities may pay electronically.


For more information, contact CBIA's Eric Gjede (860.480.1784) | @egjede