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Connecticut Pass-Through Entity (PTE) Legislative Update

 

By Anthony Clemente, CironeFriedberg, LLP

The following Connecticut law changes are effective for taxable years beginning on or after January 1, 2019, unless otherwise noted:

  1. Waiver of 2018 penalty and interest
  2. Guaranteed payments now included in PTE tax bases
  3. Estimated payment exemptions
  4. Reduction in the PTE tax credit
  5. Non-resident composite income tax remittance option.

Penalty and Interest Waiver

For taxable years beginning on or after January 1, 2018 and prior to January 1, 2019, the Department of Revenue Service (DRS) will waive any late payment penalty and related interest imposed on a PTE as long as the full amount of tax due, excluding penalties and interest, is paid within one year of the original due date of the return. The DRS will automatically process the waiver of penalty and interest for the PTE. The PTE need not submit any documentation.

Guaranteed Payments

For taxable years beginning on or after January 1, 2019, guaranteed payments are now included in the calculation of the standard base and the alternative base for the PTE tax. Previously, guaranteed payments were excluded from the calculation of either base.

Estimated Tax Exemption

For taxable years beginning on or after January 1, 2019, PTEs with annual liability of less than $1,000 will not be required to make estimated tax payments. In addition, they will avoid underpayment penalties if their estimated tax payments are equal to the lesser of:

  1. 90% of the PTE tax shown on the PTE’s current Connecticut return, or
  2. 100% of the PTE tax shown on the PTE’s prior Connecticut return if that prior return covered a period of 12 months.

PTE Tax Credit Reduction

For taxable years beginning on or after January 1, 2019, the PTE tax credit percentage has been reduced to 87.5% down from 93.01% for 2018. This reduction in credit may well result in the necessity for individual members to now make Connecticut estimated tax payments.

Non-Resident Composite Remittance Option

For taxable years beginning on or after January 1, 2019 the DRS will now allow a PTE to make an annual election to remit composite income tax on behalf of its non-resident individual members. This elective composite income tax is in addition to any PTE tax due. As a result, an electing PTE’s non-resident members will be excused from filing their own Connecticut personal income tax returns if they have no Connecticut source income other than from electing PTEs.

An electing PTE must remit composite income tax equal to the combined amount of each non-resident member’s distributive share of the PTE’s Connecticut source income multiplied by 6.99% less each non-resident member’s PTE tax credit. The composite income tax calculation must include each non-resident member and will be reported by the PTE on each non-resident member’s Schedule CT-K1. The election will only be valid if it is made on a timely filed PTE tax return including extensions. Once the election is made, it is irrevocable for that year.

If you need assistance or have any questions on the information in this article, please call your CironeFriedberg professional.  You can reach us by phone at (203) 798-2721 (Bethel), (203) 366-5876 (Shelton), or (203) 359-1100 (Stamford), or email us at info@cironefriedberg.com.
 

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