Connecticut Tax Changes Effective January 1, 2024
Prior to 2018, pass-through entities were not subject to entity-level tax in the state as income was realized by the entity’s owners. However, in 2018, the state opted to institute the pass-through entity tax (PTET), which created a tax at the entity level with two base options. This lowered the federal taxable income of the entity’s owners as the PTET was an entity expense and not subject to the new cap on state and local tax deductions under the individual income tax. Beginning in 2024, however, this regime will become elective, allowing taxpayers the freedom to determine in which years to opt for the PTET. Furthermore, only one base will be available for computing the tax. Previously, pass-through entities subject to PTET could carry forward net operating losses until fully used. This provision was not retained in the PTET update.
The state will also deliver relief to some individual taxpayers. In 2024, the state’s 3 percent bracket will be reduced to 2 percent. Similarly, the 5 percent bracket will be reduced to 4.5 percent. This relief is capped for individuals earning $150,000 or more, or married couples earning $300,000 or more. All other rates remain unchanged, including the top marginal rate. The biennium budget also raises the EITC to 40 percent of the federal credit, up from 30.5 percent, and seniors will benefit from expanded exemptions for certain pensions and annuity earnings.
In 2021, House Bill 6633 became law and raised the 2024 unemployment insurance tax wage base from $15,000 to $25,000. After 2024, the wage base will be indexed for inflation.