Tax forms and a calculator on a desk, Connecticut S Corp

Connecticut S Corp: How to Elect S Corporation Status

Connecticut S Corp: How to Elect S Corporation Status

Electing S corporation status is one of the most common tax decisions Connecticut business owners make after their first year of operation. This guide explains what the election is, how it fits with Connecticut's tax system, and the steps to take in order. Use it as a planning checklist, then confirm each step with the agency or professional named below.

Informational content, not legal or tax advice. This guide summarizes general federal and Connecticut rules and the fees published by state agencies. It does not replace advice from a licensed CPA or attorney. An S election depends on your ownership, profit and payroll, so have a qualified professional review it before you file.

What S Corporation Status Actually Is

S corporation status is a federal tax election, not a separate type of company. You do not form an S corp with the Secretary of the State. You form a corporation or an LLC in Connecticut, then ask the IRS to treat it as an S corporation for federal income tax purposes. Under the election, the business generally passes its income and losses through to the owners' personal returns instead of paying entity-level federal income tax.

Connecticut follows the federal election. An S corporation files the Connecticut composite return, Form CT-1065/CT-1120SI,, and each owner reports their share of the income on their Connecticut personal income tax return. Connecticut's personal income tax is progressive, with seven brackets ranging from 2% to 6.99%.

An LLC can make the same election. An LLC that elects S status is still an LLC under Connecticut law, so it keeps its LLC filings, including the Annual Report.

Before You File: Confirm Your Entity and Eligibility

Confirm that your business is eligible before you spend time on paperwork. The federal rules limit who can be a shareholder, how many shareholders you can have, and whether you can have more than one class of stock. Entity owners and foreign owners can create problems. Check the current requirements on IRS.gov (https://www.irs.gov) or with your CPA. Ownership changes after the election can also affect whether the election stays in effect.

Also decide whether you are ready for the costs of running an S corporation. You will need payroll for any owner who works in the business, a separate annual Connecticut return, and a documented salary. For a business with thin profit, those costs can outweigh the tax savings.

Step by Step: Electing S Corporation Status in Connecticut

Step 1: Form the entity with the Secretary of the State

Connecticut has no general state business license. Registering your entity with the Secretary of the State through Business.CT.gov is a registration, not a license. A corporation files a Certificate of Incorporation (Domestic Stock Corporation) for a $250 filing fee, followed by the Organization and First Report at $150. An LLC files a Certificate of Organization (Domestic Limited Liability Company) for a $120 filing fee.

Every corporation and LLC formed in Connecticut must appoint and maintain a registered agent. The agent must be either a Connecticut resident who is at least 18 years old or a business entity registered with the Secretary of the State. The agent's address must be a usual place of business in Connecticut that is open during normal business hours. A post office box or commercial mailbox does not qualify.

Step 2: Get a federal Employer Identification Number

Form 2553 is filed under your business's federal Employer Identification Number (EIN). If the entity does not have one yet, obtain it from the IRS before you prepare the election.

Step 3: Choose the effective date and file Form 2553

File IRS Form 2553 to elect S corporation status. The IRS sets a deadline tied to the start of the tax year the election is meant to cover, and a late or incomplete filing can push the effective date into a later year. Every shareholder must consent on the form. Read the current form instructions on IRS.gov before you file, and ask your CPA whether the timing fits your first year of revenue. The IRS has relief procedures for some late elections, but do not plan around them.

Step 4: Register for payroll once an owner is on payroll

An owner who works in the business and takes a salary is an employee for payroll purposes. Before the first payroll, register with the Connecticut Department of Revenue Services (DRS) for withholding through the myconneCT system. Register with the Connecticut Department of Labor for unemployment insurance. Then set up federal payroll deposits and reporting with the IRS. Your payroll provider or CPA can help with the mechanics.

Step 5: Calendar the recurring Connecticut filings

Each year an S corporation files the CT-1120SI return with DRS, and the owners report their shares on their personal returns. Corporations file an Annual Report with the Secretary of the State for $150 per year. LLCs file an Annual Report for $80 per year. Business.CT.gov does not publish one flat deadline. It shows each entity its own next due date in its account, so check that date each year and keep your registered agent information current.

The Connecticut Pass-Through Entity Tax Is a Separate Decision

Many owners confuse the federal S election with the Connecticut pass-through entity (PE) tax. They are separate. The PE tax is an optional tax that an S corporation can elect with DRS, and it is a separate annual election. DRS says the election is made on Form CT-1065/CT-1120SI, the tax is reported on Form CT-PET, and the election cannot be amended or revoked. Once you make the election for a tax year, it is irrevocable for that year. Making the federal S election does not automatically make the PE election, and the PE election does not change your federal status.

Because the mechanics change, check the current rules on the DRS pass-through entity tax pages at https://portal.ct.gov/drs and read the PE tax guide before you decide. Ask your CPA how the PE election affects your personal Connecticut return in the year you make it.

Corporation Business Tax: Confirm How It Applies

The Corporation Business Tax is a separate Connecticut tax from the S corporation return. It applies to corporations and to LLCs that are treated as corporations. The current rates are 7.5% of apportioned net income with a $250 minimum. A capital base tax applies and is being phased out at 0.16% for 2026, 0.11% for 2027, and none from 2028. Companies with total income of $100 million or more, or that file as part of a combined unitary group, also pay a 10% surtax.

Confirm with DRS or your CPA whether and how these taxes, including the $250 minimum, apply to your S corporation. Do not assume an S election removes them.

Reasonable Salary Rules

An owner who performs services for the S corporation must receive reasonable compensation as W-2 wages before taking distributions of profit. Distributions are generally not subject to Social Security and Medicare payroll taxes, so the IRS watches closely for owners who pay themselves little salary and take large distributions.

The rules do not set a fixed formula or number for a reasonable salary. The figure depends on the work you perform, your industry, and what comparable businesses pay for similar services. Document how you set the salary, keep a record of your duties, and review the figure with your CPA each year.

When the Election Starts to Save Self-Employment Tax

A sole proprietor or a single-member LLC taxed as a disregarded entity generally pays self-employment tax on all net profit. Under an S election, the owner's payroll taxes apply to the salary paid through payroll, and profit distributed above that salary is generally not subject to those payroll taxes. The savings grow as profit grows relative to a reasonable salary.

At lower profit levels, the savings may not cover the added costs of payroll, a separate corporate return, and the accounting work. The break-even point depends on your numbers. Run the comparison with your CPA using your actual profit, your estimated reasonable salary, and the Connecticut costs in this guide before you elect.

Fees at a Glance

ItemAmountAgency
Certificate of Incorporation (corporation)$250Secretary of the State
Organization and First Report (corporation)$150Secretary of the State
Certificate of Organization (LLC)$120Secretary of the State
Annual Report (corporation)$150 per yearSecretary of the State
Annual Report (LLC)$80 per yearSecretary of the State
Name reservation (120 days, optional)$60Secretary of the State
Corporation Business Tax minimum$250 minimum, confirm application to your S corporationDRS
Pass-through entity taxConfirm current figures on the DRS pageDRS
Form 2553Federal form, confirm requirements on IRS.govIRS
Registered agent serviceVaries by provider, get quotesPrivate provider

If a fee you need is not listed here, confirm it on the agency page before you budget for it.

Common Mistakes to Avoid

  • Filing Form 2553 before the entity exists or without an EIN.
  • Taking distributions with no salary, or setting a salary far below what the work would cost to hire out.
  • Assuming the federal election covers Connecticut's pass-through entity tax or Corporation Business Tax.
  • Letting the Annual Report lapse or leaving the registered agent information out of date.
  • Starting the first payroll before DRS withholding and Department of Labor unemployment registration are in place.

Official Resources

Next Steps

Confirm eligibility, form the entity, obtain an EIN, and decide on the effective date. File Form 2553 with every required shareholder consent. Register for Connecticut withholding and unemployment before the first payroll, and document how you set the owner's salary. Calendar the CT-1120SI return, the Annual Report and the DRS deadlines for the pass-through entity tax decision. Review all of it with a CPA each year, because the savings from an S election depend on profit that changes.

This guide is informational content, not legal or tax advice. For a decision this size, consult a qualified CPA and an attorney familiar with Connecticut business law.

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