Connecticut LLC Taxes

As a business owner in Connecticut, it’s critical to ensure you have an understanding of all the federal, state and local tax regulations that will apply to your limited liability company (LLC). 

In this article, we'll explore the various types of Connecticut LLC taxes and offer a detailed guide on how you can correctly go about filing them quickly and easily.

Recommended: Schedule a free consultation with 1-800Accountant to stay on top of your taxes. 

How Is an LLC Taxed in Connecticut?

Taxation in Connecticut isn’t applied in the same way to all LLCs – instead, it varies depending on a number of factors, such as an LLC’s nature, locality, and tax election.

While LLCs typically benefit from pass-through taxation by default, they can elect to be taxed as one of the following:

• C Corporations: The LLC is treated as a separate entity to its owners, paying corporate income tax rates on its total profit while the owners also pay personal income taxes on any distributions they take.
• S Corporations: In return for paying owners a “reasonable salary,” the LLC’s remaining profits are distributed among members without a need to pay FICA or federal self-employment tax on them.

The following sections go into the various tax responsibilities of your LLC at local, state, and federal levels in Connecticut to help you ensure your LLC navigates them effectively.

Connecticut Local Taxes

In the state of Connecticut, cities and counties do not impose any local business taxes such as income and sales tax. However, there is one significant tax at the local level that may impact your LLC.

Property Tax

Property tax is one of the few taxes in Connecticut that is set and managed at a local level by various cities, counties, and tax districts. This means the amount your business owes in property tax can vary depending on where you live in the state, as this determines the assessed value of your property and the local mill rate that applies.

For example, while the average effective property tax rate in Fairfield County was 1.83% in 2022, it was 2.4% over the same period of time in Hartford County. 

To make sure your LLC is compliant regardless of where it’s located, it's a good idea to talk to an accountant who can help you understand the property tax requirements in your LLC’s local area.

Recommended Service: Schedule a free consultation with 1-800Accountant to ensure your business remains legally compliant. 

Connecticut State Taxes

Every state has its own regulations and rules that dictate how it taxes individuals and businesses. Below is a list of the most relevant state-level taxes for LLCs in Connecticut. 

Income Taxes

This group of taxes refers to the charges imposed by the state on the earnings of individuals and entities operating within Connecticut. As an LLC based in this state, there are three key types to be aware of:

• Personal Income Taxes: This is a gradual tax that varies between a rate of 3% and 6.99% depending on your business’s taxable income and is paid by members of an LLC after their profits have been distributed.
• Pass-Through Entity Taxes: This is a flat tax of 6.99% that LLCs with a default tax structure (and any other pass-through entities) must pay on taxable income earned from sources within the state before it’s distributed. 
• Corporate Income Taxes: This tax is levied at a flat rate of 7.5% on the taxable income of corporations and LLCs that have elected to be taxed as C Corps.

To be able to pay your state income taxes, you’ll need to first apply for a Connecticut tax registration number by registering your business using the myconneCT system.

Understanding the nuances of your state income tax obligations is crucial for owners of LLCs as they form a central part of your statewide tax responsibilities.

Sales-Related Taxes

In Connecticut, a sales tax rate is applied at a flat rate of 6.35% that’s added to the price of tangible goods and services sold within the state and paid by consumers – though it can vary depending on the type of goods being sold.

Most physical goods (i.e., personal property such as clothes, electronics, and furniture) are taxable – though there are some sales tax exemptions, such as prescription drugs and prepared food.

However, certain goods in Connecticut have their own specific rate that is applied instead of this general statewide rate, including: 

• Computer and Data Processing Services; Canned Software for Business Use: 1%.
• Vessels, Motors for Vessels, Trailers for Vessels, Dyed Diesel Fuel for Marine Purposes: 2.99%.
• Motor Vehicles Sold to Nonresident U.S. Armed Forces Members Stationed in Connecticut: 4.5%.
• Meals and Certain Beverages: 7.35%.
• Motor Vehicles, High-Value Jewelry, and Expensive Clothing and Accessories: 7.75%
• Short-Term Passenger Motor Vehicle Rentals (30 Days or Less): 9.35%

Note: In order to pay Connecticut sales tax, your business will first need to obtain a Sales Tax Permit from the Connecticut Department of Revenue Services (DRS).

Employer Taxes

Should your Connecticut LLC have employees, you’ll be obligated to pay specific employer taxes at a state level. Besides your federal employer taxes, two primary state taxes are applicable in Connecticut:

Withholding Tax

The first of these taxes is withholding tax. While this tax is actually paid by your employees, it's your responsibility as the employer to deduct it from your employees’ salaries and pay it directly to the government as a part of each employee's income tax liability.

The primary purpose of withholding taxes is to collect income tax from the employee's earnings throughout the year rather than requiring the employee to pay a lump sum at the end of the tax year — this helps spread out the tax burden and ensures regular tax collection.

The amount of tax you’ll be required to withhold depends on each employee's earnings and the information they provide on federal forms such as the W-4. Using this information, along with this year’s withholding tax tables, you’ll need to calculate the amount of tax to withhold for each employee.

Note: New employers will need to register for Connecticut withholding taxes using myconneCT – even if they are already registered with the Department of Revenue Services (DRS) for other taxes.

Unemployment Insurance (UI) Tax

The second employer tax in Connecticut to be aware of is its unemployment insurance tax. This is a mandatory contribution that businesses with employers must make to fund the unemployment insurance system. 

The tax bill your business will need to pay is calculated on each employee's wages up to a maximum annual limit, known as the taxable wage base, which changes each year – for the current tax year, this is $15,000.

When paying UI premiums, your business will be charged one of the two following rates depending on how long it has been paying its employees' wages:

• New Employer Rate: New employers will pay unemployment insurance tax at a rate of 2.8%.
• Basic Rate: After an employer is no longer considered “new,” it will be subject to a rate that varies between 1.7% and 6.6%, depending on how financially stable the state considers it.

To pay UI tax, as well as find out the specific rate at which your business needs to pay it, you’ll need to register with the Connecticut Department of Labor’s ReEmployCT system. 

Industry Taxes

In Connecticut, there are a number of statewide taxes and charges levied on LLCs for the privilege of engaging in certain specific industries and business activities. The state has authorized a number of these industry taxes, with some of the most common ones being:

• Alcoholic Beverage Tax
• Cannabis Tax
• Dry Cleaning Establishments Tax
• Motor Vehicle Fuels Tax
• Rental Surcharge

The specifics of each of these industry taxes – including rates, filing requirements, and exemptions – will vary on a case-by-case basis, which makes it important to consult an accountant in order to ensure your LLC’s compliance.

For a full list of all the state taxes, as well as more information on how they work, visit the Connecticut State Department of Revenue Services.

Federal Taxes

Regardless of where your business is located, if you run an LLC in the US, there are a number of federal taxes you’ll need to pay. Below are some of the main types your LLC may be required to pay for federal tax purposes:

Income Tax

By default, the IRS will not treat single and multi-member LLCs as separate entities from you for tax purposes. What this means is that you’ll need to report your share of your LLC’s profits on your individual tax returns and pay federal income tax on them at the personal rate of your tax bracket.

Having said that, keep in mind that LLCs can also elect to be taxed as a C corporation (C corp) or an S corporation (S corp), which changes how these taxes are levied in different ways.

Self-Employment Tax

In addition to the need to pay income tax, members of single- and multi-member LLCs must also pay self-employment tax on the share of the business’s profits that they report on their personal tax return at the end of the year.

This tax is levied at a flat rate of 15.3% against businesses with net earnings that exceed $400, though it is applied slightly differently to LLCs that have elected to be taxed as S corps or C corps.

Employment Tax

If your LLC hires any employees, it will need to withhold a portion of their salaries to cover various types of taxes on your employees’ behalf – including Social Security, Medicare (FICA), and payroll taxes.

Furthermore, the members of any LLCs that have elected to be taxed as an S corp will be required to pay employment taxes on their salaries. However, in return for this, the remainder of the business’s profit after these salaries have been distributed will be safe from both self-employment and FICA taxes.

Excise Tax

If your LLC engages in certain types of business (such as the sale of alcohol and tobacco or operating a heavy highway vehicle, among others), it may need to pay federal excise taxes in order to do so legally. Each excise tax comes with its own set of rules, rates, and filing obligations you’ll need to be aware of.

Understanding and fulfilling these federal tax obligations is crucial for keeping your LLC compliant and avoiding unnecessary financial penalties and/or fines.

How to File LLC Taxes in Connecticut

Below, we’ve outlined the general process an LLC in Connecticut will need to follow in order to file their tax return correctly. Note that the specificities of each step will vary slightly depending on how your LLC is organized and the specific locality it’s based in. 

Step 1: Gather Your Documentation

To ensure accurate tax filing, thorough record-keeping is essential. Begin by collecting your personal information, including:

• You and your partner’s Social Security number, date of birth, and residential address
• The previous year’s tax returns
• Your LLC’s Employer Identification Number (EIN)

Then, you’ll need to gather all documentation related to your business’s income, such as:

• Invoices you’ve issued
• Sales transaction logs
• Electronic payment reports from services like PayPal or Stripe

Lastly, assemble all records pertaining to your business expenses, which should cover:

• Lease receipts for your business premises
• Bills for utilities
• Records of office supplies purchases
• Documentation of business-related travel
• Payroll records for employees

Note: Depending on how your LLC is organized and its tax election, you may need different information for your tax return. 

Step 2: Find The Right Tax Forms

Once you've gathered all necessary documents, the next step is to select the correct tax forms for your LLC based on its organization:

• Single-Member LLCs: The business’s total income and expenses are reported on a Schedule C form, which is attached to the owner’s personal tax return and due by April 15 or the following business day if it lands on a weekend or holiday.
• Multi-Member LLCs: File an information return using Form 1065. Members must fill out a Schedule K-1 showing their individual earnings or losses by March 15 or the next business day.
• C Corporations: File a corporate tax return using Form 1120 by the April 15 deadline or on the next business day if it's a weekend or holiday.
• S Corporations: Use Form 1120-S for the corporate tax return and distribute Schedule K-1 forms to shareholders for reporting their shares of profits or losses. The deadline for filing taxes using 1120-S is March 15 or the following business day.

Since state and local taxes will have their own individual forms and requirements, we recommend contacting your municipality or hiring an accountant for guidance.

With the appropriate documentation gathered and the correct tax forms for your business entity on hand, you’ll be ready to fill them out and submit them.

Step 3: File Your Taxes

The majority of businesses choose electronic filing for its speed, enhanced security, and reliability compared to paper filing, which can be slower and more prone to errors. Here’s how it works:

• Federal Tax Returns: The IRS provides two electronic services for tax submission: Free File for businesses with an AGI below $72,000 and Free Fillable Forms for those above the threshold.
• State and Local Tax Returns: Depending on the specific tax, the filing requirements can vary. You can pay most of your business taxes online using either myconneCT or the Taxpayer Service Center.

Note: These electronic filing tools are best suited for those who are already confident in handling their LLC taxes as if filling out a paper form. 

For new business owners, we recommend opting for the expertise of a tax professional in order to ensure both accuracy and compliance in your tax filings. 

Recommended: Schedule a free consultation with 1-800Accountant to stay on top of your taxes. 

Keep Your Connecticut LLC Compliant

While LLCs are generally easier to maintain than corporations, there are certain state and local formalities your LLC must satisfy in order to remain compliant. 

Connecticut Annual Report

As an LLC owner in Connecticut, you’ll need to file an annual report in order to keep your business compliant and in good standing with the state. For LLCs, this report is due by March 31 each year, alongside a filing fee of $80.

You’ll need to file your report online using the Connecticut Business Services Division Online Filing System. Before doing so, you’ll need to have the following pieces of information on hand: 

• Business and Contact Information: Include your business name, Connecticut business ID number, and business mailing/physical address.
• NAICS Code: This is the industry classification code for your business.
• Foreign Entity Information: If applicable, provide the executive/principal office address.
• Management Information: List at least one officer/director or member/manager with their full name and address.
• Registered Agent Details: Include the name and address of your registered agent. You can update this information during filing if needed.

While Connecticut doesn’t impose late fees for delayed annual report filings, not filing can affect your business's good standing, and failing to file for over a year can lead to administrative dissolution of your business.

Licensure and Tax Requirements

In Connecticut, almost all businesses are required to obtain various licenses and permits at the local, state, and federal levels. Below, we’ve broken down three of the most common types your LLC may need:

• Sales Tax Licenses: In Connecticut, your business will be required to obtain a Sales and Use Tax Permit from the Connecticut Department of Revenue Services if it needs to collect sales tax.
• Professional Licenses: Any businesses based in specialized industries, such as healthcare, law, or accounting, must secure a professional license pertinent to that field from the Occupational & Professional Licensing Division of the Connecticut Department of Consumer Protection before they can start to operate.
• Environmental Permits: Any businesses that engage in operations that might affect the environment will require specific permits from the Connecticut Department of Energy & Environmental Protection to operate legally.

Connecticut LLC Taxes FAQs