Connecticut is a high-income, high-cost state that has made several modest tax cuts in recent years. Corporations pay a 7.5% Corporation Business Tax, with a 10% surtax on the largest companies. Individuals pay 2% to 6.99%, and the state charges a 6.35% sales tax with no local add-ons. Connecticut also pioneered the pass-through entity tax used by states across the country to work around the federal SALT cap.
This guide covers each Connecticut business tax in 2026, formation and maintenance costs, and how Connecticut compares with New York, Massachusetts and Rhode Island.
Corporation Business Tax
Connecticut taxes C corporations at 7.5% of net income, with a $250 minimum tax.
- Surtax: Companies with $100 million or more in annual gross income, and combined groups that pay more than the minimum, add a 10% surtax on their tax liability. That raises the effective rate to 8.25%. The 2025 budget extended the surtax through income years beginning before January 1, 2029.
- Capital base tax: Fully phased out in 2024. Corporations now compute tax only on net income.
- Combined reporting: Mandatory for unitary groups, with a water's-edge default and an election for worldwide or affiliated group reporting.
- Apportionment: Single sales factor with market-based sourcing.
- Credits: Research and development credits, including a refundable credit exchange for qualified small businesses, and apprenticeship credits.
- Returns: Form CT-1120 is due on the 15th day of the month after the federal due date.
Personal income tax and pass-through owners
Connecticut's personal income tax uses seven brackets. For single filers in 2026:
| Taxable income (single) | Rate |
|---|---|
| $0 to $10,000 | 2% |
| $10,000 to $50,000 | 4.5% |
| $50,000 to $100,000 | 5.5% |
| $100,000 to $200,000 | 6% |
| $200,000 to $250,000 | 6.5% |
| $250,000 to $500,000 | 6.9% |
| Over $500,000 | 6.99% |
The 2024 cut lowered the two bottom rates from 3% to 2% and from 5% to 4.5%. High earners lose the benefit of lower brackets through a benefit recapture provision.
Pass-through entity tax (PET): Connecticut created the first SALT workaround in 2018, as a mandatory tax. Since 2024 it has been elective. Electing partnerships and S corporations pay 6.99% on their taxable income, and owners claim a credit equal to 87.5% of their share. The entity-level tax is deductible for federal purposes.
Sales and use tax
The sales tax rate is 6.35% statewide. There are no local sales taxes, which makes Connecticut simple for retailers.
| Item | Rate |
|---|---|
| General rate | 6.35% |
| Meals and prepared food | 7.35% |
| Luxury vehicles, jewelry and clothing above set thresholds | 7.75% |
| Computer and data processing services | 1% |
Connecticut taxes a broad range of services compared with most states, including many business services, cleaning and landscaping.
Other Connecticut business taxes
- Unemployment insurance: Employers pay on a wage base that is indexed to wage growth and now exceeds $26,000. New employers start at about 2.8%.
- Connecticut Paid Leave: Funded by a 0.5% employee contribution.
- Property tax: Municipal property taxes are high, and businesses must file personal property declarations each year by November 1. Some towns tax business equipment heavily.
- Real estate conveyance tax: Applies on property sales, at higher rates for expensive residential sales.
Forming a business in Connecticut: fees and ongoing costs
| Item | LLC | Corporation |
|---|---|---|
| Formation filing fee | $120 | $250 (including $150 minimum franchise tax) |
| Annual report | $80 | $150 |
| Minimum income tax | None at the entity level | $250 Corporation Business Tax |
| Registered agent | Required | Required |
Worked example: $500,000 of profit
| Step | Amount |
|---|---|
| Taxable income | $500,000 |
| Connecticut corporate tax at 7.5% | $37,500 |
| Federal tax at 21% on $462,500 | $97,125 |
| Total income tax | $134,625 (26.9%) |
A company of this size is not subject to the surtax. For a single LLC owner with $150,000 of Connecticut taxable income, state income tax is about $7,750. At $75,000 it is about $3,375.
How Connecticut compares with its neighbors
| State | Corporate rate | Top personal rate | Sales tax |
|---|---|---|---|
| Connecticut | 7.5% (8.25% with surtax) | 6.99% | 6.35% |
| New York | 6.5% to 7.25% | 10.9% | 4% plus local |
| Massachusetts | 8% | 9% | 6.25% |
| Rhode Island | 7% | 5.99% | 7% |
Connecticut's personal income tax is lower than New York's and Massachusetts's at the top end. Many hedge funds and financial firms in Fairfield County chose Connecticut for this reason. Its corporate rate is mid-range for the Northeast.
Choosing an entity in Connecticut
- LLC or partnership: Owners pay personal income tax up to 6.99%. The PET election can reduce federal tax for high earners.
- S corporation: Same PET option, plus federal self-employment savings.
- C corporation: Pays 7.5% plus 21% federally. The surtax only bites for very large companies.
Tax planning tips for Connecticut businesses
Run the PET numbers every year. The elective pass-through entity tax only helps if the federal deduction is worth more than the 12.5% of the tax that owners can't recover through the credit. For owners in the top federal bracket who itemize, the election usually wins. For owners who take the standard deduction or have low income, it may not.
Watch the benefit recapture. Connecticut phases out the benefit of lower brackets for high earners, which means a single filer earning well above $200,000 can face an effective rate close to 6.99% on all income, not just the top slice. Timing large income events, such as the sale of a business, can matter.
Consider the angel investor and R&D credits. Connecticut offers an angel investor tax credit for investments in qualifying early-stage Connecticut businesses, and qualified small businesses can exchange unused R&D credits for a partial cash refund. Both can make Connecticut more attractive for technology and life science startups than its headline rates suggest.
File personal property declarations on time. Towns add a 25% penalty for late declarations, and the penalty is easy to trigger in the first year of business.
Check the Connecticut sales tax on your services. Connecticut taxes many business-to-business services that are exempt elsewhere, including computer and data processing services (at 1%), management consulting in some cases, and building maintenance. Software and IT firms that sell to Connecticut customers should confirm how their offering is classified.
Recent changes for 2025 and 2026
- Surtax extended through 2028 for large corporations.
- PET remains elective, with the credit at 87.5% of the owner's share.
- Bottom income tax rates reduced in 2024 remain in place.
- Capital base tax fully phased out.
Is Connecticut a good state for business?
Advantages
- Single statewide sales tax rate with no local add-ons
- Elective pass-through entity tax for SALT planning
- Highly educated workforce and proximity to New York City and Boston
- Strong financial services, insurance and advanced manufacturing clusters
Drawbacks
- High property taxes and cost of living
- Surtax on large corporations
- Sales tax on many business services
- Benefit recapture raises effective rates for high earners
Compliance checklist
- File a Certificate of Organization or Incorporation with the Secretary of the State.
- Register with the Department of Revenue Services through myconneCT for sales tax and withholding.
- Register with the Department of Labor for unemployment insurance if you hire.
- Withhold Connecticut Paid Leave contributions.
- File annual reports with the Secretary of the State.
- File Form CT-1120, CT-1065/CT-1120SI or the PET return as applicable.
Compare Connecticut with its neighbors below, or estimate your taxes in the United States calculator. See also Partnership taxes.