Connecticut Tax Preparer Requirements 2025-2026

Connecticut is one of a small number of states that requires non-credentialed paid tax preparers to hold a state-issued permit before accepting a single dollar for preparing returns. If you prepare more than 10 returns for Connecticut clients, you need a Connecticut Department of Revenue Services (DRS) permit. That permit requires the IRS Annual Filing Season Program (AFSP) Record of Completion, completed in the same calendar year you apply. There is also a compliance item that catches most new Connecticut preparers off guard: Connecticut's 6.35% sales and use tax applies to tax preparation fees. You must collect it, register for a sales tax permit, and remit it to DRS. This guide covers every requirement a Connecticut paid preparer needs for TY2025 returns filed in 2026: the DRS permit and AFSP mandate, all fees, the e-file threshold, Connecticut income tax rates (including the 2024 rate cut that dropped the two lowest brackets to 2% and 4.5%), retirement income exemptions, OBBBA add-backs, the property tax credit, the Connecticut EITC, and the client niches across Fairfield County, Hartford, New Haven, and the military communities in Southeastern Connecticut.

Does Connecticut Require a License to Prepare Taxes?

Yes. Connecticut requires a DRS-issued paid preparer permit under Connecticut General Statutes Section 12-790a. Unlike the majority of states, which regulate only CPAs and Enrolled Agents while leaving non-credentialed preparers unregulated, Connecticut treats non-credentialed paid tax preparation as a regulated activity. Operating without a required permit carries a civil penalty of $100 per day.

The 10-return threshold is the legal trigger. A preparer who handles 10 or fewer Connecticut or federal returns for Connecticut clients in a calendar year is not required to hold a permit. At return number 11, the permit requirement applies. The count includes both Connecticut returns and federal returns prepared for Connecticut-resident clients; the two are not counted separately.

Who Is Exempt from the Permit Requirement

The following practitioners are exempt and do not need a DRS permit:

• Connecticut-licensed Certified Public Accountants (CPAs) and holders of equivalent active professional credentials from any U.S. jurisdiction
• IRS Enrolled Agents (EAs)
• Attorneys preparing returns for their legal clients, and persons working under direct attorney supervision
• Government employees performing official duties

If you hold an EA credential, you are exempt from the Connecticut DRS permit entirely. Earning the EA is a permanent solution to both the state permit requirement and the annual AFSP renewal. If you are not yet credentialed and plan to remain a non-credentialed preparer, the DRS permit is mandatory once you cross the 10-return threshold.

The Connecticut DRS Permit: AFSP Mandate and Eligibility

Effective January 1, 2022, Connecticut DRS requires all permit applicants and renewers to hold a current-year IRS Annual Filing Season Program (AFSP) Record of Completion. A prior-year record is not accepted. If you apply in 2026, your AFSP Record of Completion must be from 2026. If you renew in 2027, you will need a 2027 record.

This is the direct connection between the Connecticut state requirement and the AFSP: completing the IRS Annual Filing Season Program satisfies the Connecticut DRS permit's education requirement. A preparer who earns the AFSP Record of Completion has, in the same step, fulfilled the state's CE condition for the Connecticut permit.

AFSP CE Hour Breakdown

The AFSP requires 18 total CE hours from an IRS-approved provider:

America's Tax Professionals (ATP) is IRS-approved CE provider P619F and offers the AFSP program including the required AFTR course. Completing the program through ATP generates your IRS AFSP Record of Completion, which you then submit with your DRS permit application or renewal.

Full Permit Eligibility Requirements

All of the following must be met to qualify for a Connecticut DRS preparer permit:

• Age 18 or older
• High school diploma or GED
• Valid IRS PTIN
• Current-year AFSP Record of Completion (same calendar year as the application)

How to Apply: Connecticut eLicense Portal

Applications are submitted online only through the Connecticut eLicense portal at elicense.ct.gov. No paper applications are accepted. You will need your PTIN, your AFSP Record of Completion documentation, and payment of the permit fee. Once issued, the permit is valid for two years from the date of issue.

An inactive permit status is available for preparers who temporarily stop practicing. While on inactive status, you cannot prepare returns or advertise as a DRS permittee. Reactivating an inactive permit costs $50 and restores it for the remainder of the current permit period.

Connecticut Preparer Fees and All-In Cost Summary

Here is the complete cost picture for a new Connecticut non-credentialed paid preparer, consolidating every permit, registration, and federal requirement:

Note on the sales tax permit: the $100 DRS fee for the Sales and Use Tax Permit is separate from the $100 DRS preparer permit fee. A new Connecticut preparer needs both, for a combined $200 in DRS fees at startup (plus the PTIN). For the permit fee schedule, see the Connecticut eLicense portal at elicense.ct.gov.

Penalties for Operating Without a Permit

The daily penalty structure is what makes Connecticut's permit requirement different from a nominal registration formality. Under Connecticut General Statutes, operating as a paid preparer without the required DRS permit carries a civil penalty of $100 per day. A preparer who starts the season unpermitted and works through a 60-day window faces up to $6,000 in daily penalties before any other violations are considered.

Violations of the 13 standards of professional conduct for Connecticut preparers carry an additional $500 fine per violation. These standards cover things like signing every return you prepare, providing clients with a copy, not conditioning fees on a refund outcome, and maintaining proper records.

The practical advice: obtain your PTIN and complete your AFSP CE before the filing season opens. Apply for the DRS permit at elicense.ct.gov once your AFSP Record of Completion is issued by the IRS. Do not accept compensation for a return until your permit is active.

PTIN, EFIN, and Connecticut E-File Mandate

Federal PTIN Requirement

A valid IRS Preparer Tax Identification Number (PTIN) is required for all paid preparers nationwide. Connecticut uses the federal PTIN on all returns; there is no separate Connecticut preparer ID. The 2026 PTIN fee is $18.75, paid at irs.gov/ptin. Renewal is required annually by December 31. See our PTIN guide for the full registration and renewal walkthrough.

Connecticut E-File Mandate: 50-Return Threshold

Connecticut requires electronic filing if you prepared 50 or more Connecticut income tax returns in the prior calendar year. The mandate applies to all Connecticut income tax returns filed by that preparer going forward. Connecticut's 50-return threshold is lower than many states (Maryland, for example, triggers at 100 returns), meaning a growing Connecticut practice hits the e-file requirement earlier than preparers in many other states expect.

Connecticut participates in the IRS Federal/State Modernized e-File (MeF) Program. There is no separate Connecticut EFIN; your IRS-issued EFIN covers Connecticut e-file upon acceptance into the IRS MeF program. See our EFIN guide for the application process.

Connecticut Sales Tax on Tax Preparation Services: What Every Preparer Must Know

Connecticut is one of the few states in the country that imposes its sales and use tax on the act of preparing a tax return. The rate is 6.35%. If you are charging clients to prepare their returns, you are required to collect Connecticut sales tax on those fees and remit it to DRS. This applies to sole practitioners, partnerships, and any entity accepting compensation for return preparation in Connecticut. Most small independent preparers are unaware of this obligation until they are audited.

What IS Subject to the 6.35% Sales Tax

Under Connecticut General Statutes Section 12-407 and DRS Special Notice SN 91-17, the following services are taxable when charged by a tax preparer:

• Time spent interviewing the client about items for the return
• Organizing and summarizing data for input on forms
• Inputting data on forms (electronic or paper)
• Reviewing the completed tax return
• Meetings to explain the return to the client
• Charges for typing, reproducing, assembling, or mailing the return
• Travel, lodging, and meal charges billed to the client in connection with preparation

The key test is timing: services rendered after the close of the taxable period are taxable. A preparer charging $250 to prepare a Form 1040 owes $15.89 in Connecticut sales tax ($250 x 6.35%) on that transaction.

What is EXCLUDED from Sales Tax

The following are not subject to the 6.35% tax:

• Tax advice, tax research, and tax planning given before or during the taxable year the return pertains to (pre-period services are not return preparation)
• Accounting and bookkeeping services: financial statements, balance sheets, profit-and-loss statements
• Audit support and tax litigation services
• Probate court document preparation

This distinction matters for planning engagements. A preparer who conducts quarterly tax planning sessions with a client during the year can charge for those sessions without collecting sales tax. The moment the preparer touches the return to complete it after year-end, those services are taxable.

How to Register and Remit

To comply, you must:

1. Register for a Connecticut Sales and Use Tax Permit with DRS (Form REG-1, $100 fee) before you begin collecting fees for return preparation
2. Collect 6.35% Connecticut sales tax on preparation fees from Connecticut clients
3. File Form OS-114 (Sales and Use Tax Return) on a quarterly or monthly filing schedule as assigned by DRS
4. Remit the collected tax with each filing

A preparer who has been collecting fees without charging and remitting sales tax has exposure for the uncollected tax plus interest and penalties. If this describes your situation, contact a Connecticut tax professional to assess back-period liability before DRS identifies it first.

Connecticut Individual Income Tax for TY2025

The 2024 Rate Cut: 2% and 4.5% at the Lower Brackets

Beginning with Tax Year 2024 (returns filed in 2025) and continuing for TY2025, Connecticut reduced its two lowest income tax rates. The 3% rate became 2%, and the 5% rate became 4.5%. The governor described this as the largest income tax cut in Connecticut history. Preparers and software using pre-2024 rate defaults will produce incorrect returns. Verify your tax software is applying the current rates to all TY2025 Connecticut returns.

TY2025 Connecticut Income Tax Brackets

Income thresholds are approximate. Verify exact bracket dollar amounts against the official TY2025 CT-1040 instructions at portal.ct.gov/drs before preparing returns. Married filing jointly (MFJ) bracket thresholds are roughly double the single thresholds; the top MFJ rate of 6.99% applies above approximately $1,000,000. Connecticut does not provide a preferential capital gains rate; long-term capital gains are taxed at the same graduated rates as ordinary income.

Personal Exemption Credit

Connecticut does not use a standard deduction. Instead, it provides a personal exemption that operates as a credit against computed tax. The credit is calculated based on a $15,000 exemption equivalent for single filers ($24,000 for MFJ). The exemption phases out above $30,000 Connecticut AGI (single) or $48,000 (MFJ), decreasing by $1,000 for each $1,000 of Connecticut AGI above the threshold. At higher income levels the credit is fully phased out and provides no benefit.

Tax Benefit Recapture: Effective Rates Can Exceed 6.99%

Connecticut has a unique tax benefit recapture mechanism that phases out the benefit of lower brackets for high-income earners. This is separate from the rate schedule and is calculated on a supplemental table (Table D) within the CT-1040 instructions.

For MFJ filers, additional tax starts accruing once Connecticut AGI exceeds $210,000, and continues at higher levels above $400,000 and above $1,000,000. The practical effect: at certain income ranges, taxpayers pay their top marginal rate on all income, not just the top slice, because the tax benefit of lower brackets has been recaptured. For Fairfield County clients in hedge funds, private equity, and financial services, this provision is a planning-level issue, not just a compliance detail. Effective marginal rates in the recapture range can exceed the stated 6.99% top rate.

Connecticut Alternative Minimum Tax

Connecticut maintains its own individual Alternative Minimum Tax, reported on Form CT-6251. The CT AMT is active for TY2025. Preparers serving clients with large preference items (ISO exercises, significant capital gains, municipal bond interest not exempt from the Connecticut AMT) must complete the CT-6251 analysis. The CT AMT rate is the lesser of 19% of federal tentative minimum tax or 5.5% of federal AMTI, with Connecticut-specific modifications applied from that starting point.

Connecticut Retirement Income Exemptions for TY2025

Pension and Annuity Exemption

Connecticut provides a subtraction modification for pension and annuity income (private pensions, 401(k) distributions, 403(b) distributions, government pensions). Eligibility is based on federal AGI:

• Full exemption: Federal AGI below $75,000 (single, MFS, or HOH) or below $100,000 (MFJ): 100% of pension and annuity income is deductible from Connecticut taxable income
• Partial exemption: Federal AGI between $75,000 and $100,000 (single) or $100,000 and $150,000 (MFJ): the exemption phases down on a sliding scale
• No exemption: Federal AGI above $100,000 (single) or $150,000 (MFJ): no pension or annuity deduction is available

IRA Distribution Deduction: 75% for TY2025, 100% for TY2026

Connecticut enacted a phase-in for the exemption of traditional IRA distributions (not Roth IRA distributions). For TY2025, qualifying taxpayers may deduct 75% of traditional IRA distributions from Connecticut taxable income. The deduction reaches 100% starting with TY2026. The same AGI thresholds that govern the pension exemption apply here ($75,000/$100,000 for single, $100,000/$150,000 for MFJ). This is an important planning item: clients on the edge of the AGI threshold in TY2025 should consider timing strategies ahead of TY2026, when the full deduction applies.

Roth IRA distributions are generally not included in federal AGI when they are qualifying distributions, so the Connecticut IRA deduction is typically not relevant for Roth accounts.

Teacher Retirement System (TRS) Pension: 50% Deduction, No AGI Limit

Taxpayers receiving a pension from the Connecticut Teachers Retirement System (TRS) may deduct 50% of that income from Connecticut taxable income, regardless of their AGI. There is no income limit and no phase-out. A retired teacher with $80,000 in TRS pension income deducts $40,000 on the Connecticut return, even if their total federal AGI exceeds the threshold that eliminates the general pension exemption.

Military Retirement Pay: 100% Exempt, No AGI Limit

Connecticut provides a 100% subtraction modification for military retirement pay received by retired members of any branch of the U.S. armed forces, the National Guard, and survivors receiving benefits under elections made by deceased retired military members. There is no income limit. Military retirement income is entirely excluded from Connecticut taxable income, regardless of how much the retiree earns from other sources.

Social Security, the Connecticut EITC, and the Property Tax Credit

Social Security: Exempt Below $75,000 AGI (Single) or $100,000 (MFJ)

Social Security benefits are fully exempt from Connecticut income tax for taxpayers with federal AGI below $75,000 (single, MFS, or HOH) or $100,000 (MFJ). Above those thresholds, a partial exemption phases out on a sliding scale through $100,000 (single) or $150,000 (MFJ). Above the upper thresholds, the maximum Connecticut-taxable amount is 25% of federally taxable Social Security benefits. Connecticut does not subject the full benefit to tax even at the highest income levels; the 25% cap is a meaningful protection for high-income retirees.

Connecticut EITC: 40% of Federal, Plus $250 Supplement for TY2025

The Connecticut Earned Income Tax Credit equals 40% of the federal EITC for TY2025. New for TY2025: qualifying taxpayers who have at least one qualifying child receive an additional $250 supplement on top of the standard 40% calculation. The Connecticut EITC is refundable: if the credit exceeds the taxpayer's Connecticut income tax liability, the excess is paid as a refund. Any Connecticut resident who qualifies for the federal EITC automatically qualifies for the Connecticut credit. For preparers serving working families in Bridgeport, New Haven, Hartford, and Waterbury, the refundable Connecticut EITC plus the $250 supplement is a significant benefit to claim and explain to clients.

Connecticut Property Tax Credit (Schedule CT-1040 REC)

The Connecticut property tax credit is a credit on the Connecticut income tax return (not a municipal property tax reduction). For TY2025, the maximum credit is up to $300. To qualify, a taxpayer must be a full-year Connecticut resident, age 65 or older by the end of the tax year or have claimed at least one dependent on the federal return, and have paid Connecticut property tax on a primary residence or a motor vehicle registered in Connecticut.

The credit phases out above approximately $47,500 AGI (single) and approximately $70,500 AGI (MFJ). Verify the exact phase-out thresholds against the final TY2025 Schedule CT-1040 REC instructions at portal.ct.gov/drs before preparing returns, as these thresholds may be subject to adjustment.

OBBBA Conformity and Required Add-Backs for TY2025

Connecticut uses rolling conformity to the Internal Revenue Code, which means it automatically adopts new federal tax law unless the legislature acts to decouple. For the One Big Beautiful Bill Act (OBBBA, P.L. 119-21, enacted 2025), Connecticut enacted explicit decoupling for the provisions most relevant to individual returns. For TY2025, preparers must apply the following add-backs on the Connecticut CT-1040.

Tips Deduction and Overtime Deduction: Add-Back Required

Connecticut has decoupled from both the OBBBA qualified tips deduction (IRC Section 224) and the qualified overtime compensation deduction. If a client claims either deduction on their federal return, that amount must be added back to Connecticut taxable income on the CT-1040. A restaurant worker in New Haven who deducts $15,000 in qualified tips federally must add $15,000 back on the Connecticut return. Communicate this to clients early: a Connecticut balance due arising from these add-backs can come as a surprise if not anticipated.

Connecticut DRS has indicated it will issue additional guidance on the mechanics of these add-backs. Monitor the DRS state tax developments page at portal.ct.gov/drs for updated instructions and the specific add-back line numbers on the 2025 CT-1040.

Bonus Depreciation: Full Add-Back Required

Connecticut has never conformed to federal bonus depreciation. This is a pre-existing, permanent decoupling that predates the OBBBA. The OBBBA restored 100% federal bonus depreciation; Connecticut continues to require a full add-back of any bonus depreciation deduction taken federally. This affects business clients who placed property in service and took the federal bonus depreciation deduction.

Section 179: 80% Add-Back with Four-Year Recovery

Connecticut requires an 80% add-back of the federal Section 179 deduction in the year it is taken. The disallowed 80% is recovered by taking a 20% deduction on the Connecticut return in each of the four subsequent tax years. Example: a client takes a $100,000 Section 179 deduction federally. The Connecticut return in Year 1 must add back $80,000. In Years 2 through 5, the Connecticut return recovers $20,000 per year. Tracking these multi-year carry amounts for business clients requires attention to carryforward schedules.

QBI Deduction (Section 199A): Never Conformed

Connecticut has never conformed to the qualified business income deduction under IRC Section 199A. Because Connecticut computes state taxable income starting from federal AGI (not federal taxable income), the Section 199A deduction (which reduces federal taxable income below AGI) does not flow into the Connecticut calculation at all. Pass-through business owners do not receive a 20% QBI deduction on their Connecticut return. The OBBBA made Section 199A permanent at the federal level; that change has no effect on Connecticut because the state never adopted the deduction in the first place.

Starting a Tax Preparation Business in Connecticut

LLC Formation Costs

Connecticut LLCs are formed through the Connecticut Secretary of the State, available online at business.ct.gov. The Certificate of Organization filing fee is $120. Expedited processing (approximately 24-hour turnaround) adds $50. An annual report is required by March 31 each year; the filing fee is $80.

Connecticut eliminated the Business Entity Tax effective January 1, 2020. There is no Connecticut BET for TY2025 or any year thereafter. Some older sources still reference a biennial fee; disregard any reference to the BET. It no longer exists.

Pass-Through Entity Tax (PTET) Election

Connecticut's PTET became an elective program starting with tax years beginning on or after January 1, 2024. For a tax preparation practice organized as a multi-member LLC or S-corporation, the PTET allows the entity to pay Connecticut income tax at the entity level (rate: 6.99%), and individual owners receive a Connecticut income tax credit for their share of the PTET paid. The PTET is the primary SALT deduction cap workaround available to Connecticut pass-through entity owners.

The PTET election is made annually by checking the box on a timely-filed Form CT-1065/CT-1120SI. The election is irrevocable for the year. The filing deadline for calendar-year entities is March 15.

Connecticut Client Niches: Where the Complexity Is

Fairfield County: Hedge Funds, Private Equity, and High-Earner Recapture

Greenwich and Stamford are home to a concentration of hedge fund and private equity managers. This population brings carried interest, complex K-1 allocations from fund partnerships (ordinary income, short-term capital gains, long-term capital gains, Section 1231 gains, currency gains), ISO exercises, and deferred compensation timing decisions. Connecticut taxes capital gains at ordinary income rates, so the federal benefit of preferential capital gains rates on carried interest does not translate directly to a Connecticut benefit.

For clients in the $210,000 and above Connecticut AGI range, the tax benefit recapture provision on Table D of the CT-1040 is a calculation that affects actual tax owed. The Connecticut PTET election is also a significant planning tool for managers earning management fees through pass-through entities. Many Fairfield County residents work in New York and are affected by New York's convenience of the employer rule, creating a potential double-tax situation that Connecticut has partially addressed through a 60% credit mechanism passed in the 2025 legislative session.

Hartford Insurance Corridor: Executive Equity and Deferred Compensation

Hartford's insurance industry corridor (The Hartford, Cigna, Aetna/CVS Health, Travelers) produces a client base of executives receiving RSUs, stock options (including ISOs), and nonqualified deferred compensation. ISO exercises create both federal and Connecticut AMT exposure; the CT AMT begins with federal AMTI as the starting point, so large ISO exercises that generate federal AMT preference items also feed into the Connecticut AMT calculation on Form CT-6251. Deferred compensation distributions under IRC Section 409A are taxable Connecticut income in the year paid, and timing of distributions relative to Connecticut residency is a meaningful planning point for executives approaching retirement or relocation.

New Haven and Yale: Graduate Students, International Scholars, and Biotech Equity

Yale graduate students and postdoctoral fellows receive stipends that may or may not appear on W-2s depending on whether the payment is for services or for scholarship. Connecticut taxes fellowship stipend income that is Connecticut-sourced, even when federal income tax was not withheld. International students and scholars at Yale file Form CT-1040NR/PY as Connecticut nonresidents; treaty benefits that reduce federal withholding do not automatically apply to Connecticut. Preparers handling these returns need to understand Form 1042-S treatment and the interaction with Connecticut's nonresident rules.

Yale and New Haven's biotech sector (Arvinas and others) also generates equity compensation complexity: RSU vesting, Section 83(b) elections for founders receiving restricted stock, and ISO AMT exposure. Connecticut taxes long-term capital gains on biotech stock at the same graduated rates as ordinary income, up to 6.99%.

Southeastern Connecticut: Pfizer, Pharmaceuticals, and Rhode Island Border Crossers

Pfizer's Global Research and Development center in Groton is one of the largest pharmaceutical R&D sites in the world. Pfizer employees receive RSUs that vest and settle as ordinary income, pushing Connecticut taxable income into higher brackets. ISO exercises at Pfizer or smaller biotech spinouts require CT-6251 analysis for AMT. New London County borders Rhode Island; some Pfizer employees live in Rhode Island and commute to Connecticut. Connecticut and Rhode Island do not have a reciprocity agreement, so a Rhode Island resident earning Connecticut-source wages files Form CT-1040NR/PY and claims a credit on the Rhode Island return for Connecticut taxes paid.

Military Community: Naval Submarine Base New London and USCG Academy

Naval Submarine Base New London in Groton is the primary submarine base for the U.S. Atlantic Fleet. The U.S. Coast Guard Academy is located in New London. These installations generate a client population with specific tax issues that preparers must handle correctly.

Under the Servicemembers Civil Relief Act (SCRA), an active-duty service member's state of domicile does not change because they are stationed in Connecticut. A submariner domiciled in Texas who is stationed at Groton does not become a Connecticut resident and their military pay is not subject to Connecticut income tax. Preparers must correctly identify the service member's state of domicile and either not file a Connecticut return or file a nonresident return showing no Connecticut-source income from military pay.

Military spouses may elect the service member's state of domicile under the Military Spouses Residency Relief Act (MSRRA), meaning a spouse employed in Connecticut can elect to not be subject to Connecticut income tax on those wages. Many Connecticut employers incorrectly withhold Connecticut tax from military spouse wages; the preparer's job is to identify the eligibility for the MSRRA election and file for a refund of incorrectly withheld tax. Military retirement income is 100% exempt from Connecticut income tax, providing a substantial benefit for retired service members.

Frequently Asked Questions