Gov. Ned Lamont on Wednesday proposed restoring Connecticut’s pass-through entity tax credit to its original level, which would enable the state’s small business owners 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 during a press conference in Hartford’s North End. “By making this change, we can provide confidence to businesses that they can receive the full benefit of this tax credit.”
The pass-through entity tax credit allows business owners to avoid the state tax deduction limitation enacted during the administration of former President Donald Trump. State business taxes are fully deductible for federal tax purposes, but deductions for state personal income taxes are limited to $10,000.
To circumvent that limitation, the pass-through entity tax is imposed directly on the business rather than the owner. Because of the pass-through, the the business owner is able to fully deduct it, without limitation, on their federal income tax return.
Alexandra Daum, the commissioner designate of the state’s Department of Economic and Community Development, said the proposal will directly benefit more than 120,000 companies in Connecticut.
Connecticut was the first state in the nation to implement a pass-through entity tax credit, and what Lamont is proposing would return the tax credit to its original level of 93.01 percent. More than 25 states now have pass-through entity tax credits.
Lamont’s budget proposal will also recommend that business owners be allowed to choose whether to pay the tax on their income at the business or personal level. This would allow them to decide which option is more advantageous to them.
Mark Boughton, Connecticut’s Department of Revenue Services commissioner, called the tax proposals “a win-win for Connecticut.”
Lamont’s proposal for reducing business taxes comes as he is also proposing a reduction in the state’s personal income tax rate. The business and personal income tax cuts will be part of the governor’s biennial budget proposal that will be presented to the legislature next month.
Lamont unveiled his business tax proposals a day after the state’s Office of Policy and Management and Office of Fiscal Analysis jointly released Connecticut’s January consensus revenue forecast. The projections for state tax receipts contained in that forecast make it likely that the Connecticut will finish the current fiscal year with a surplus of more than $3 billion.
luther.turmelle@hearstmediact.com