Excess Net Passive Income Tax Rate

Imposed if an s corpora tion has accumulated earnings and profits at the end of the tax year and its passive investment income exceeds 25 of the corporation s gross receipts.

Excess net passive income tax rate. Excess net passive income is computed under a formula in which 1 the passive investment income in excess of 25 of gross receipts for the taxable year is divided by the corporation s passive investment income for the taxable year. Long term capital gains and qualified dividends are taxed at zero 15 and 20 percent for 2017 but the brackets are different. In the event the passive income exceeds 25 percent of the gross receipts of the corporation the excess net passive income tax comes into play. For purposes of this section 1 excess net passive income.

For 2017 passive income that is taxed as ordinary income will be taxed in the 2017 tax brackets and so the income tax rates range from 10 to 39 6 percent depending on your annual income. Excess net passive income tax excess net passive income is a corporate level tax on the passive income earned by an s corporation. The tax is assessed at the maximum corporate tax rate of 35. Tax shall be computed by multiplying the excess net passive income by the highest rate of tax specified in section 11 b irc sec.

There is an extra 1 18 percent marginal tax rate caused by pease limitations on all itemized deductions. However if it does have both e p and excess passive investment income some of the excess net passive investment income may be subject to tax at the highest corporate income tax rate currently 35 thus the sting. S corporations that have previously been a c corporation and have accumulated earnings and profits at the end of the tax year will be assessed a passive income tax if passive investment income for the year exceeds 25 of gross receipts for the year. And 2 the net passive income less deductions is multiplied by this percentage to arrive at excess net passive income.

Excess net passive income tax. Compute the annual income tax due. Except as provided in subparagraph b the term excess net passive income means an amount which bears the. The tax will not apply to a year in which there is no taxable income.

Corporate tax rate times excess net passive income. How much involvement an owner has in the s corporation will determine how much that owner will pay in taxes. Excess if any of the inventory. Passive income is derived from financial instruments that include.

S corporation owners are required to pay federal income taxes state taxes and local income tax. The excess net passive income tax applies if passive income is more than 25 of the s corporation s gross receipts.