How to Start an S Corp in Connecticut

Connecticut S Corp Requirements

• Business Entity: You must have an active Connecticut corporation or LLC registered with the Secretary of the State before electing S Corp tax status. [2]
• Federal S Corp Election: File IRS Form 2553, Election by a Small Business Corporation, no later than 2 months and 15 days after the beginning of the tax year the election is to take effect. [3]
• Connecticut Recognition: Connecticut follows the federal S Corp classification automatically. No separate state election form is required. A federal S Corporation files Form CT-1120SI in Connecticut. [1]
• Shareholder Limits: No more than 100 shareholders. All shareholders must be U.S. citizens or residents, estates, certain trusts, or tax-exempt organizations. No corporate or partnership shareholders. [3]
• Stock Class: Only one class of stock is permitted. Voting rights may differ, but all shares must have identical distribution and liquidation rights. [3]
• Registered Agent: Under Conn. Gen. Stat. § 33-660, every Connecticut corporation must continuously maintain a registered agent in the state. [4]
• Annual Report: All Connecticut corporations and LLCs file an annual report with the Secretary of the State. The fee is $150 for corporations and $80 for LLCs. [5]

What Is an S Corporation?

An S Corporation is not a type of business entity. It is a federal tax classification available to qualifying corporations and LLCs that elect to have their business income pass through to shareholders for tax purposes.

The S Corp designation is governed by Subchapter S of the Internal Revenue Code. When you elect S Corp status, the business itself generally does not pay federal income tax. Instead, income, losses, deductions, and credits flow through to shareholders, who report them on their personal returns. [13]

In Connecticut, an S Corporation files Form CT-1120SI, the Connecticut S Corporation and Partnership information return, by March 15. The S Corp generally does not pay Connecticut income tax at the entity level. Shareholders pay Connecticut personal income tax on their pro rata share at graduated rates up to 6.99%.[1] [9]

Connecticut also offers an elective Pass-Through Entity (PE) Tax on Form CT-PET. After years of being mandatory, the PE Tax became optional for tax years beginning on or after January 1, 2024, under Public Act 23-204. The PE Tax rate is a flat 6.99% and preserves the federal SALT deduction for shareholders. [7]

For business owners earning $60,000 or more in net business income, the S Corp election can provide meaningful self-employment tax savings. Only the salary you pay yourself as a W-2 employee is subject to Social Security and Medicare taxes; distributions beyond reasonable compensation are not.

Key Deadlines for Connecticut S Corps

Key Benefits of an S Corp vs. an LLC in Connecticut

• Self-Employment Tax Savings: LLC members generally pay 15.3% self-employment tax on all net business income. S Corp shareholders pay payroll taxes only on their W-2 salaries. Distributions beyond reasonable compensation are not subject to Social Security or Medicare taxes, which can save several thousand dollars per year at higher income levels.
• No Business Entity Tax: Connecticut repealed the $250 biennial Business Entity Tax effective January 1, 2020 under Public Act 19-117. Neither S Corps nor LLCs owe it any longer. [14]
• PE Tax Election Available: Both S Corps and partnership-taxed LLCs may elect the 6.99% Connecticut PE Tax, now optional for tax years beginning on or after January 1, 2024, providing a federal SALT cap workaround. [7]
• Credibility and Structure: The corporate form with officers, directors, bylaws, and shareholder meetings can enhance credibility with lenders, vendors, and investors compared with a member-managed LLC.
• Employee Benefits Deductions: S Corp shareholder-employees who own 2% or less can deduct health insurance premiums, retirement contributions, and other fringe benefits pre-tax.

Key Benefits of an S Corp vs. a C Corp in Connecticut

• No Double Taxation: Connecticut C Corps pay the 7.5% Corporation Business Tax (plus a 10% surtax for companies with $100 million or more in gross income) at the entity level, then shareholders pay personal income tax on dividends. S Corp income passes through to shareholders only once. [6]
• No Entity-Level Income Tax: Connecticut S Corps generally do not pay the Corporation Business Tax. They file Form CT-1120SI and pass income through to shareholders (unless they elect the PE Tax). [1]
• Loss Pass-Through: S Corp losses pass through to shareholders’ personal returns and can offset other income, subject to basis, at-risk, and passive activity limitations.
• No Accumulated Earnings Tax: C Corps that retain earnings beyond reasonable business needs may face a 20% federal accumulated earnings tax. S Corps have no such risk.
• PE Tax Eligibility: Only S Corps and partnership-taxed LLCs can elect the Connecticut PE Tax. C Corps cannot use it to work around the federal $10,000 SALT deduction cap. [7]

How to Start an S Corp in Connecticut: Step-by-Step

An S Corp is a tax classification, not a standalone entity. You must have an active Connecticut corporation or LLC on file with the Secretary of the State before you can elect S Corp tax treatment with the IRS.

If you want to form an LLC first, check this guide.

If you want to incorporate as a C Corp first, check this guide.

Already have an existing LLC or corporation? Move to Step 1.

Step 1: File IRS Form 2553 (Federal S Corp Election)

Form 2553, Election by a Small Business Corporation, is the IRS form that officially elects S Corp tax treatment at the federal level. It must be filed no later than 2 months and 15 days after the beginning of the tax year the election is to take effect. [3]

What Information Is Required To File Form 2553?

Form 2553 collects the following information:

• Business legal name, address, and EIN
• The tax year for which the election is to take effect
• Your entity date of formation or incorporation
• Name, address, and ownership percentage of each shareholder or member
• Shareholder/member consent signatures (Part I, Column K)
• Fiscal tax year details, if not operating on a calendar year

All shareholders must sign the consent portion of the form before submission. An unsigned form will be rejected by the IRS.

How To File Form 2553

You can submit Form 2553 by mail or fax.

If your principal business office is located in Connecticut, mail Form 2553 to: Department of the Treasury, Internal Revenue Service, Kansas City, MO 64999. [8]

Fax number for Connecticut businesses: 855-887-7734. [8]

Faxing is typically faster than mailing. Keep your fax confirmation receipt. The IRS will issue a CP261 acceptance notice to confirm your S Corporation election.

Step 2: Confirm Connecticut Recognition

Connecticut follows the federal S Corp classification automatically. Once the IRS accepts your Form 2553, file Form CT-1120SI annually. There is no separate Connecticut election form to submit. [1]

Step 3: Set Up Payroll and Pay Reasonable Compensation

As an S Corp shareholder-employee, you are required to pay yourself a reasonable salary through W-2 payroll. The IRS scrutinizes S Corps that pay unreasonably low salaries to avoid payroll taxes.

What Is a Reasonable Salary?

The IRS expects your salary to reflect what someone performing similar work, in the same industry and the same region, would typically earn. There is no fixed formula, but the IRS flags S Corps where compensation is well below market.

What Setting Up Payroll Involves

• Choosing a payroll system to process your W-2 salary and withhold taxes
• Making federal payroll tax deposits using Form 941 (quarterly)
• Registering with the Connecticut Department of Labor through ReEmployCT for state unemployment insurance. [11]
• Registering with the Connecticut Department of Revenue Services for state income tax withholding through myconneCT
• Filing annual W-2 forms with the Social Security Administration and the Department of Revenue Services

Step 4: Get an Employer Identification Number (EIN)

If you do not already have an EIN, apply at no charge on the IRS website (irs.gov). An EIN is a nine-digit federal ID used for tax filings, hiring employees, and opening business accounts.

Note: After obtaining your EIN, open a dedicated business bank account to keep your personal and business finances separate. This is essential to maintain your limited liability protection.

Compliance and Ongoing Requirements

Annual Report

Every Connecticut corporation and LLC must file an annual report with the Secretary of the State by the entity anniversary date. The fee is $150 for corporations and $80 for LLCs. Filing is completed online through the business.ct.gov portal. [5]

Tax Returns

File IRS Form 1120-S and distribute Schedule K-1s to all shareholders by March 15 (calendar-year filers). File Connecticut Form CT-1120SI by the same March 15 deadline. If the S Corp has elected the PE Tax, file Form CT-PET as well. [1] [7]

Extensions

Connecticut grants a six-month filing extension for pass-through entities when Form CT-1065/CT-1120SI EXT is filed by the original due date. The extension is for filing only; tax due must still be paid by March 15. [1]

Estimated Tax

If your S Corp has elected the PE Tax and expects to owe more than $1,000, pay quarterly estimated PE Tax through myconneCT. Shareholders separately pay quarterly Connecticut personal income tax on pass-through income. [7]

Late Filing Penalties

Late filing of Form CT-1120SI incurs a penalty of $50 per partner or shareholder per month (up to $2,500), plus interest at 1% per month on any unpaid tax. Failure to file the annual report may lead to administrative dissolution. [1] [5]

What Happens If You Miss the S Corp Election Deadline in Connecticut?

If you fail to file Form 2553 with the IRS on time, your S Corp election will not take effect for the current tax year. Your business will be taxed as a C Corporation (or as a sole proprietorship or partnership if the underlying entity is an LLC), costing you the self-employment tax savings until the next tax year.

The IRS offers late election relief under Revenue Procedure 2013-30. To qualify, you must file within 3 years and 75 days of the intended effective date, demonstrate reasonable cause for the late filing, and confirm that the entity has consistently filed as if the S election were in effect.[3]

Because Connecticut follows the federal S election automatically, there is no separate state late-election process. Once the IRS grants late election relief, Connecticut will treat the entity as an S Corporation for the same tax year. [1]

How to Revoke the S Corp Election

Common Reasons Owners Revoke S Corp Status

• Exceeding 100 shareholders: If your business grows beyond the 100-shareholder limit, it no longer qualifies for S Corp status and must convert to a C Corp.
• Bringing in foreign investors: S Corps cannot have non-U.S. citizens or non-resident alien shareholders.
• Planning to go public or raise venture capital: Most institutional investors and IPO structures require C Corp status with multiple classes of stock.
• Tax strategy changes: At higher income levels, the C Corp flat federal rate (21%) plus qualified dividend treatment may outperform pass-through taxation.
• Simplifying structure: Owners who no longer benefit from payroll-tax savings may return to LLC or C Corp taxation to reduce compliance costs.

How to Revoke

At the federal level, the S Corp election can be revoked by filing a statement of revocation with the IRS, signed by shareholders holding more than 50% of the outstanding shares. The revocation is effective the first day of the tax year if filed by the 15th day of the third month; later filings take effect the following tax year. [3]

Because Connecticut follows the federal classification, a federal revocation automatically terminates the Connecticut S Corp status. The entity then files Form CT-1120 as a C Corp. Once revoked, you generally cannot re-elect S Corp status for five years without IRS consent. [1]

Connecticut Taxes for S Corporations

No Corporation Business Tax (S Corps)

Connecticut S Corps generally do not pay the Corporation Business Tax. The 7.5% tax, plus a 10% surtax for companies with $100 million or more in gross income, applies only to C Corps. Connecticut also imposes a $250 minimum Corporation Business Tax on C Corps. [6]

Pass-Through Entity (PE) Tax (Now Optional)

Connecticut was the first state to enact a Pass-Through Entity Tax, originally mandatory from 2018 through 2023. Under Public Act 23-204, the PE Tax became optional for tax years beginning on or after January 1, 2024. An S Corp may now elect the PE Tax on Form CT-PET at a flat 6.99%, preserving the federal SALT deduction at the entity level. [7]

Repealed Business Entity Tax

Connecticut formerly charged a $250 Business Entity Tax every two years on corporations, LLCs, and other entities. Public Act 19-117 repealed the Business Entity Tax effective for tax periods beginning on or after January 1, 2020. Connecticut S Corps no longer owes it. [14]

Shareholder Personal Income Tax

Shareholders pay Connecticut personal income tax on their pro rata share of S Corp pass-through items at graduated rates from 2.00% to 6.99%. Nonresident shareholders pay tax only on income derived from Connecticut sources. [9]

Sales and Use Tax

Connecticut state sales tax is 6.35% on most tangible personal property and certain services. There is no local sales tax. Register through myconneCT. [10]

Cost Breakdown: Starting an S Corp in Connecticut

S Corp vs. LLC in Connecticut: Comparison

Is an S Corp Right for Your Connecticut Business?

The S Corp election makes the most financial sense when your net business income is high enough that the self-employment tax savings outweigh the cost of running payroll and the additional compliance burden. Use this guide:

Keep in mind that Connecticut annual report fees, payroll setup costs, and ongoing CPA fees together add roughly $800 to $2,500 in annual costs. S Corps also have ownership restrictions that may not suit every business model.

Annual Requirements at a Glance

Bibliography

[1] Connecticut Department of Revenue Services. 2024 CT-1065/CT-1120SI Composite Income Tax Instructions. Accessed May 19, 2026.

[2] Connecticut Secretary of the State. Domestic Stock Corporations Forms and Fees. Accessed May 19, 2026.

[3] IRS. Instructions for Form 2553. Accessed May 19, 2026.

[4] Connecticut General Assembly. Conn. Gen. Stat. Chapter 601 (Business Corporation Act, Section 33-660). Accessed May 19, 2026.

[5] Connecticut Secretary of the State. Annual Report Forms and Fees. Accessed May 19, 2026.

[6] Connecticut Department of Revenue Services. Corporation Business Tax Information. Accessed May 19, 2026.

[7] Connecticut Department of Revenue Services. Pass-Through Entity Tax Information. Accessed May 19, 2026.

[8] IRS. Where to File Your Taxes (for Form 2553). Accessed May 19, 2026.

[9] Connecticut Department of Revenue Services. Individual Income Tax Information. Accessed May 19, 2026.

[10] Connecticut Department of Revenue Services. Sales and Use Tax Information. Accessed May 19, 2026.

[11] Connecticut Department of Labor. Unemployment Tax Registration (ReEmployCT). Accessed May 19, 2026.

[12] Connecticut Secretary of the State. Domestic Limited Liability Companies Forms and Fees. Accessed May 19, 2026.

[13] IRS. S Corporations. Accessed May 19, 2026.

[14] Connecticut Department of Revenue Services. Business Entity Tax Sunset (Public Act 19-117). Accessed May 19, 2026.

Official Resources

• Connecticut Department of Revenue Services. Income tax, withholding, CT-1120SI filings, and PE Tax guidance.
• Connecticut Secretary of the State. Certificate of Incorporation, annual reports, and business filings.
• Connecticut Department of Labor. Unemployment insurance registration through ReEmployCT.
• Connecticut General Assembly. Connecticut General Statutes, including the Business Corporation Act.