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 OBBBA confirmed it as permanent. The exam tests the rate, the double taxation concept, the new CAMT for very large corporations, and comparisons to individual rates.
Expect at least 2-3 questions on the corporate tax rate.
The 21% Flat Rate (Permanent under OBBBA)
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. OBBBA permanently locks the 21% rate — 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 OBBBA
| Feature | Status (2025-forward) |
|---|---|
| 21% rate | Permanent (OBBBA) |
| 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
Expect 2-3 questions on the tax rate, typically:
- Rate Questions: "What is the corporate tax rate for Tax Year 2025?" (Answer: 21% — permanent under OBBBA.)
- 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 OBBBA. 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?
A C corporation has taxable income of $500,000. What is its federal income tax?
What is the approximate combined effective tax rate for C corporation income distributed as qualified dividends?
The 15% Corporate Alternative Minimum Tax (CAMT) generally applies to which corporations for Tax Year 2025?