CONNECTICUT, USA — Gov. Ned Lamont's first legislative proposal aims to help small businesses in the state, he announced Wednesday.
The proposal would restore Connecticut's pass-through entity tax credit back to its original level of 93.01%. Doing that would enable small business owners in the state to save money by claiming a larger credit on their personal returns.
“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.”
House Republican Leader Vincent Candelora responded to Lamont's legislative proposal Wednesday with a statement.
"It's good news that Governor Lamont continues to show that he's on board with the tax relief Republicans are pursuing, in this case correcting a tax hike on businesses that was included in the budget he and legislative Democrats put into action in 2019," Candelora said. "It's my hope that the combination of his proposal and our caucus bill to restore the pass-through entity tax credit will generate momentum within the General Assembly and get this done for taxpayers and the small business community."
Connecticut’s pass-through entity tax credit is a mechanism for business owners to avoid the state tax deduction limitation imposed on them during the administration of former President Donald Trump.
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.
At its inception, it was not intended to be a revenue raiser for the state; rather, it was solely intended to help small business owners avoid the unfair deduction limits placed on them by the federal government.
For federal tax purposes, state business taxes are fully deductible, while deductions for state personal income taxes are limited to $10,000. To avoid this limitation, the pass-through entity tax is imposed directly on the business rather than the owner.
To avoid this limitation, the pass-through entity tax is imposed directly on the business rather than the owner. Since the pass-through entity tax has already reduced the business income that “passes through” to the owner, the owner can fully deduct it, without limitation, on their federal income tax return.
As the pass-through entity has already paid the pass-through entity tax, and to avoid taxing the same income again on the owner’s personal income tax return, a corresponding personal-income tax credit is provided to the owner.
This proposal builds on several tax relief measures that have been approved by the Lamont administration over the last four years, including:
- Repealing the business entity tax
- Phasing out the capital base tax by income year 2028
- Repealing the ambulatory surgical center tax
- Repealing the movie theater admissions tax
- Reducing the unemployment insurance tax in 2023
- Restoring the cap on the R&D credit from 50.01% to 70% of tax liability
- Expanding the employer student loan tax credit
- Enacting the Jobs CT tax credit
The recommendation will be included as a component of the governor’s fiscal years 2024 and 2025 budget proposal, which Lamont will present to the Connecticut General Assembly in February.
Jennifer Glatz is a digital content producer at FOX61 News. She can be reached at jglatz@fox61.com.
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