Connecticut Small Business Taxes: The Employer’s Complete 2023 Guide

Feli Oliveros

In addition to being one of the wealthiest states in the country, Connecticut is notable for its high small business success rate. The percentage of startups in the Constitution State that are still in operation a year after their formation—also known as the early startup survival rate—is 81.3%. Perhaps this is one reason why small businesses make up 99.4% of Connecticut’s businesses today.  

But even with a favorable environment for entrepreneurship, prospective small business owners must keep their tax obligations in mind if they want their venture to be successful. If you plan on starting a business in Connecticut, here’s what you need to know about small business taxes in the state.

What kinds of business taxes do you pay in Connecticut?

The taxes your Connecticut small business pays depend on factors like your business structure, revenue, and employer status. However, many small businesses in the state can expect to pay income tax, sales tax, withholding tax, and unemployment insurance tax. 

Connecticut individual income tax

Pass-through entities such as sole proprietorships, partnerships, and limited liability companies (LLCs) require that owners or members report profits and losses on their personal income tax returns. 

Connecticut’s personal income tax rates range from 3% to 6.99%, depending on your annual taxable income. 

How to pay

To pay your taxes, you’ll need to sign up for a Connecticut tax registration number first. Register using the state’s myconneCT system, an online portal business owners in the state use to file and pay nearly all their taxes. 

Use myconneCT to file and pay your personal income taxes (Form CT-1040) by April 15. When paying your taxes, make sure to include the electronic payment voucher Form CT-1040V with your payment. 

Note that the tax filing process is slightly different for Connecticut residents, part-year residents, and nonresidents—and that the information here focuses on Connecticut residents. For more details on part-year resident and nonresident income taxes, visit the Connecticut Department of Revenue Services (DRS) website

Connecticut pass-through entity tax election

Connecticut charges a pass-through entity (PE) tax on partnerships, S corporations, and LLCs taxed as partnerships or S corporations. The state’s PE tax rate is 6.99%. 

How to pay

Pass-through entity tax returns (Form CT‑1065/CT‑1120SI) are due on the 15th day of the third month after the end of the fiscal year. 

File your PE tax returns through myconneCT. Tax payments, along with payment coupon Form CT‑1065/CT‑1120SI ES, should also be submitted electronically. If your business’s PE tax liability for the year is $1,000 or more, you must also make estimated tax payments by April 15, June 15, September 15, and January 15.

For more information on the Connecticut PE tax, including how much to pay in estimated taxes each quarter, visit the DRS website

Connecticut corporate income tax

The state of Connecticut also imposes a 7.5% tax on corporate income for the privilege of doing business in the state, with a minimum tax of $250.

According to the Department of Revenue Services, your corporate tax liability is the greater amount between your net income base tax and your capital base tax. The DRS goes into further detail on how to calculate your tax rate, as well as examples to walk you through the calculation process, on its website

How to pay

You’ll need to register your corporation with the Department of Revenue Services before you can file your corporate taxes, so first complete your registration application on myconneCT. 

Corporate income tax returns and payments are due on the 15th day of the month after the federal tax return is due. So, if you follow the calendar year, your deadline is May 15. Businesses following a fiscal year that ends on June 30 must file taxes by October 15 instead. 

File your business tax return (Form CT-1120) and make payments on myconneCT. Note that certain corporations may be exempt from paying corporate income taxes, but may still have to file an annual return. 

Corporations that expect their tax liability for the year to be over $1,000 are required to make estimated tax payments according to the following schedule:

  • 15th day of the third month of the fiscal year
  • 15th day of the sixth month of the fiscal year
  • 15th day of the ninth month of the fiscal year
  • 15th day of the twelfth month of the fiscal year

For more details on the Connecticut corporation business tax, including which businesses are tax-exempt and how much your business should pay in estimated taxes, visit the Department of Revenue Services website

Sales and use tax

Connecticut businesses that sell physical goods, digital goods, and certain services must pay sales tax to the Department of Revenue Services. 

The state sales tax is 6.35%, and there are no local sales taxes to worry about. However, the state imposes different sales tax rates on some products—such as meals, certain beverages, jewelry over $5,000, and motor vehicles over $50,000—as well as additional excise taxes on products like alcohol and cigarettes. Check with your accountant or tax advisor to ensure you’re sending the right amount in sales tax to the state. 

How to pay

To submit sales tax returns and make payments, you’ll first need to register for a sales and use tax permit on myconneCT. Note that there is a $100 fee. 

When you receive your sales tax permit, you’ll also find out whether your business must file taxes on a monthly, quarterly, or annual basis. Typically, this decision is made based on your state sales tax liability. 

File your returns on myconneCT using Form OS-114, even if you don’t owe any sales tax for the filing period. Tax payments can also be made online. Tax returns and payments are due by the last day of the month after the end of the filing period. 

For more information about the Connecticut sales tax, visit the DRS website

Withholding tax

Employers in Connecticut must withhold taxes from the wages of each employee who lives or performs work in the state. In 2023, the Connecticut withholding tax rates range from 3% to 6.99%.

How to pay

You’ll need to register your business with the Department of Revenue Services to submit your withholding taxes. Sign up online via myconneCT.

Once you’ve registered your business, you must submit withholding taxes along with Form CT-WH on a weekly, monthly, or quarterly basis. How often you submit payment depends on your withholding tax liability from the previous year. If your payment frequency changes, you’ll receive a notice in the mail from DRS. New employers are classified as quarterly taxpayers when they first register their business. 

Additionally, most employers must file a quarterly tax report (Form CT-941) online, even if they don’t owe any taxes for the filing period. These reconciliation reports are due April 30, July 31, October 31, and January 31. 

Employers must also submit an annual reconciliation report (Form CT-W3), along with each Copy 1 of their employees’ Form W-2s, on myconneCT by January 31. 

To learn more about Connecticut’s withholding tax, including tax payment schedules, visit the DRS website or review the Connecticut Employer’s Tax Guide

Unemployment insurance tax

Connecticut businesses with employees must also pay a state unemployment insurance tax. The Connecticut unemployment tax rate in 2023 ranges from 1.7% to 6.6% on the first $15,000 of employee wages. New employers can expect to pay a tax rate of 2.8%. 

How to pay

Employers must register their business with the Connecticut Department of Labor ReEmployCT system to receive their unemployment insurance Employer Account Number (EAN). 

After that, you’re required to file and pay unemployment taxes through ReEmployCT by April 30, July 31, October 31, and January 31. 

For more information on Connecticut unemployment taxes, get in touch with the Department of Labor

Connecticut business tax breakdown by business type

Use the chart below to compare the federal and Connecticut state taxes that different business entities are required to file. Remember that pass-through entities don’t file federal income taxes—owners pay taxes through their personal returns instead. 

Business typeState income taxesPass-through entity taxSales and use taxWithholding taxUnemployment taxFederal income taxes
C corporationYesNo Yes, if applicable Yes, if you hire employeesYes, if you hire employeesYes
S corporationYesYesYes, if applicable Yes, if you hire employeesYes, if you hire employeesYes (pass-through)
LLC with C corp electionYesNo Yes, if applicable Yes, if you hire employeesYes, if you hire employeesYes
LLCYesYes, if taxed as an S corporationYes, if applicable Yes, if you hire employeesYes, if you hire employeesYes (pass-through)
Partnership YesYesYes, if applicable Yes, if you hire employeesYes, if you hire employeesYes (pass-through)
Sole proprietorship YesNo Yes, if applicable Yes, if you hire employeesYes, if you hire employeesYes, by way of individual income tax

File your Connecticut small business taxes with Gusto

With features designed for small business owners, Gusto’s payroll software helps you file your federal and state business taxes with ease. 

Gusto automatically submits your payroll taxes every time you run payroll and keeps you compliant with ever-changing tax guidelines so you can focus on what matters most in your business. Try it out for yourself by signing up for an account today. 

Feli Oliveros Feli Oliveros is a freelance finance and business writer with experience covering personal and small business finance. In 2015 she graduated from UCLA, where she earned her bachelor’s degree in English and minored in Anthropology.
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