20.2 Corporate Tax Rate (21%) & CAMT
Key Takeaways
The federal corporate income tax rate is a flat 21% — TCJA (2017), made PERMANENT by OBBBA (July 4, 2025).
There is no sunset on the 21% rate; ignore older speculation about reverting to graduated rates.
Prior to TCJA, corporations faced graduated rates up to 35%.
C corporations face double taxation: 21% at the entity level + 0/15/20% dividend tax to shareholders.
Personal service corporations (PSCs) also pay the flat 21% (no longer 35%).
Corporate Alternative Minimum Tax (CAMT, IRA 2022): 15% on adjusted financial statement income (AFSI) for corps with $1B+ average 3-year AFSI — applies for 2025.
State corporate taxes are imposed in addition to the 21% federal rate.
Why This Matters for the Exam
The 21% flat rate is fundamental to C corporation taxation, and TCJA did not give it a scheduled sunset. The exam tests the rate, the double taxation concept, the new CAMT for very large corporations, and comparisons to individual rates.
The 21% Flat Rate (Permanent under TCJA)
All C corporations pay federal income tax at a flat 21% rate, regardless of income level. The Tax Cuts and Jobs Act (TCJA, 2017) introduced the 21% rate; the One Big Beautiful Bill Act (OBBBA, signed July 4, 2025) made it permanent — there is no scheduled sunset.
| Income Level | Tax Rate |
|---|---|
| $0 - $50,000 | 21% |
| $50,001 - $100,000 | 21% |
| $100,001 - $1,000,000 | 21% |
| Over $1,000,000 | 21% |
Formula:
Federal Corporate Tax = Taxable Income × 21%
History: Pre-TCJA Graduated Rates
Before TCJA, corporations faced graduated rates:
| Income | Old Rate |
|---|---|
| $0 - $50,000 | 15% |
| $50,001 - $75,000 | 25% |
| $75,001 - $10,000,000 | 34% |
| Over $10,000,000 | 35% |
TCJA replaced this with a single 21% rate, effective for tax years beginning after December 31, 2017. The 21% corporate rate has no scheduled sunset — exam answers that mention "reverting to 35%" or "sunset in 2025" are wrong for the 2026-2027 cycle.
Corporate Alternative Minimum Tax (CAMT)
Enacted by the Inflation Reduction Act of 2022 and still in effect for 2025:
| CAMT Element | Detail |
|---|---|
| Rate | 15% |
| Base | Adjusted financial statement income (AFSI) |
| Applies to | Corps with average annual AFSI > $1 billion over the prior 3 years |
| Foreign-parented groups | Lower $100M U.S.-AFSI threshold may also trigger CAMT |
| Mechanics | Taxpayer pays the greater of regular 21% tax or 15% CAMT |
Most small and mid-sized corporations are unaffected by CAMT; it primarily targets the largest multinationals. Expect the exam to test recognition of CAMT's existence and trigger, not detailed AFSI computation.
Permanence under TCJA
| Feature | Status (2025-forward) |
|---|---|
| 21% rate | Permanent under TCJA |
| Graduated corporate rates | Eliminated; will not return |
| PSC special rate | Eliminated (PSCs use the flat 21%) |
| 15% CAMT (IRA 2022) | In effect for 2025 |
Double Taxation: The Full Picture
C corporations face two layers of tax:
| Layer | Rate | Applied To |
|---|---|---|
| Corporate level | 21% | Corporate taxable income |
| Shareholder level | 0% / 15% / 20% | Qualified dividends |
Double Taxation Example (Tax Year 2025)
| Step | Calculation | Amount |
|---|---|---|
| Corporate income | $100,000 | |
| Corporate tax (21%) | $100,000 × 21% | ($21,000) |
| After-tax profit | $79,000 | |
| Dividend distributed | $79,000 | |
| Shareholder tax (15%) | $79,000 × 15% | ($11,850) |
| Net to shareholder | $67,150 | |
| Effective combined rate | ($21,000 + $11,850) / $100,000 | 32.85% |
Comparison: C Corp vs. Pass-Through
| Factor | C Corporation | Pass-Through (S Corp) |
|---|---|---|
| Entity tax | 21% (permanent) | 0% |
| Shareholder tax | 0-20% on dividends | Up to 37% on income |
| QBI deduction (§199A) | N/A | Up to 20% (made permanent by OBBBA) |
| Double taxation | Yes | No |
| Best for | Reinvesting profits, raising capital | Distributing profits |
Personal Service Corporations (PSCs)
| PSC Rule | Current |
|---|---|
| Tax rate | 21% (same as regular corps) |
| Pre-TCJA | Was 35% flat |
| Activities | Health, law, engineering, accounting, etc. |
Real-World Scenario
Scenario: A C corporation earns $500,000 in Tax Year 2025. Calculate the federal tax.
- Regular tax: $500,000 × 21% = $105,000.
- CAMT: Not applicable (3-year average AFSI < $1B).
- If distributed as dividend: Shareholders pay additional tax (0-20% depending on bracket).
- Planning: Retaining earnings avoids immediate shareholder tax but triggers AET risk (see 20.3).
On the Exam
Question types to practice on the tax rate:
- Rate Questions: "What is the corporate tax rate for Tax Year 2025?" (Answer: 21% — permanent under TCJA.)
- Calculation Questions: "A corporation has $X income. What is the tax?"
- Double Taxation Questions: "What is the effective combined rate?"
- CAMT Questions: "Which corporations are subject to the 15% corporate AMT?"
The key is to remember: 21% flat rate, permanent under TCJA. CAMT 15% on AFSI for $1B+ corps. Double taxation = 21% + dividend rate (up to ~33% combined).
What is the federal corporate income tax rate for Tax Year 2025?
15%
21%
28%
35%
A C corporation has taxable income of $500,000. What is its federal income tax?
$75,000
$105,000
$140,000
$175,000
What is the approximate combined effective tax rate for C corporation income distributed as qualified dividends?
21%
28%
33%
40%
The 15% Corporate Alternative Minimum Tax (CAMT) generally applies to which corporations for Tax Year 2025?
All C corporations regardless of size
C corporations with average annual AFSI over $1 billion in the prior 3 years
Personal service corporations only
C corporations with taxable income over $10 million
Sections you finish are checked off in the contents.