Gov. Ned Lamont announced Wednesday that he is proposing to restore the pass-through entity tax credit to its original level.
The tax credit percentage was reduced to 87.5% for taxable years beginning on or after Jan. 1, 2019.
Lamont said the proposal, his first of the 2023 legislative session, would return the tax credit to its original, revenue-neutral level of 93.01%. That will enable small business owners to save money by claiming a larger credit on their personal returns, he said.
The pass-through entity tax is paid by the owners of many small and mid-sized businesses. Under the Tax Cuts and Jobs Act of 2017, the pass-through entity tax deduction for federal tax purposes was capped at $10,000.
Connecticut’s pass-through entity tax credit allows business owners to avoid the state tax deduction limitation, Lamont said.
The recommendation will be included in Lamont’s FY 2024-25 budget, which he will present to the General Assembly next month.
“These changes we are proposing will help small businesses in Connecticut save money, which they can use to reinvest back into their establishments to support their continued growth and the development of new jobs,” Lamont said. “By making this change, we can provide confidence to businesses that they can receive the full benefit of this tax credit.”
Connecticut was the first state in the nation to implement a pass-through entity tax credit, and since then more than 25 states have followed, according to Lamont.
In addition to increasing the credit, Lamont’s budget proposal will recommend that businesses be allowed to elect whether to pay the tax on their income at the business or personal level.
The Connecticut Business and Industry Association’s President and CEO Chris DiPentima said Lamont’s proposal will have “an immediate and positive impact, allowing small businesses to invest tens of millions of dollars in jobs.”
“It’s one of the critical steps needed to help Connecticut’s smaller employers compete and grow their workforce,” he said.
