Connecticut’s recently passed $55.8 billion biennial budget brings a mix of financial shifts, modest tax changes, and regulatory reforms that will impact businesses across the state.
While it avoids broad-based tax increases, the plan leans on extended corporate surcharges, delayed pension contributions, and borrowing to balance the books. Here’s what small and mid-sized business owners in Connecticut need to know.
Key Highlights
- Extended Corporate Surcharge
The 10% corporate business tax surcharge, originally set to expire, has been extended through 2028. While many small businesses operate as pass-through entities and won’t be directly affected, mid-sized businesses structured as corporations may see increased tax liabilities. - Regulatory Reform Offers Relief
A new law now requires state agencies to evaluate the potential impact of proposed regulations on small businesses. This move adds transparency and gives business owners more opportunities to weigh in before costly or complex rules are enacted. - Investment in Workforce and Community Infrastructure
The budget dedicates significant resources to early childhood care, K–12 education, and Medicaid. While not business-focused on the surface, these investments can strengthen the local workforce and improve employee recruitment and retention, especially for companies struggling to fill roles. - Modest Revenue Increases Through Policy Adjustments
In addition to the corporate tax surcharge, the state is increasing revenue through accounting shifts like delaying pension fund payments and reallocating revenues. These choices help the state stay within constitutional spending limits but may signal limited room for future flexibility. - New Budget Avoids Personal Income Tax Changes
Despite discussions, there are no major personal income tax changes in this budget. This brings stability for business owners planning around individual tax rates. - Fiscal Guardrails Adjusted
While the budget technically stays under the spending cap, critics note it does so by deferring obligations and using temporary funding sources. Business owners should be aware this may increase the risk of future tax hikes or spending cuts if revenues fall short.
What This Means for Connecticut Businesses
The 2026–27 budget doesn’t include sweeping changes for business owners, but it does signal a continued reliance on temporary solutions to balance state finances. If your business is structured as a C corporation, you should factor the extended surcharge into your tax planning. All business owners should take note of the new regulatory review requirements, which may reduce compliance burdens in the future.
Additionally, investments in childcare and healthcare could indirectly support your workforce, particularly if your employees struggle with access to affordable services.
With This in Mind, You May Want to:
- Review your tax exposure. If you’re a corporation, budget for the extended 10% surcharge through 2028.
- Stay engaged on regulations. With the new small-business impact law in place, your voice matters more. Participate in comment periods or through your trade associations.
- Watch mid-cycle budget updates. Because the budget relies on deferrals and borrowing, any economic downturn could lead to mid-year changes.
- Plan workforce strategies around state investments. Improved access to education and childcare may offer indirect support to your recruitment and retention efforts.
If you have questions about how the new budget might affect your business or want to evaluate your tax planning heading into 2026 (which we recommend in this article), our team is here to help.