Corporate Minimum Tax: Who Pays and How It’s Calculated

The corporate minimum tax is a 15% floor tax on the financial-statement income of the largest U.S. corporations, created by the Inflation Reduction Act of 2022 and known formally as the corporate alternative minimum tax (CAMT). It applies to companies whose average annual profits reported to shareholders exceed $1 billion, and it kicks in only when their regular federal tax liability falls below 15% of that book-based income. In practice, roughly 100 to 150 corporations owe the tax in a given year, though many more must run the numbers to prove they don’t.¹

Which Corporations Owe the Tax

A corporation is an “applicable corporation” subject to the CAMT if its average annual adjusted financial statement income (AFSI) exceeds $1 billion over the three-taxable-year period ending with the current year. Income from related entities on a consolidated financial statement is pulled in, so a group cannot split operations across subsidiaries to slip under the threshold. S corporations, regulated investment companies, and real estate investment trusts are excluded regardless of size.²

Foreign-parented multinational groups face a two-part test. Worldwide AFSI must exceed $1 billion over the same three-year window, and the U.S. portion must average at least $100 million. Both prongs must be satisfied.²

Applicable corporation status is sticky. Once a corporation crosses the threshold, it stays subject to the tax in future years unless it has either a change in ownership or a sustained string of years below the income test, and the Treasury Department affirmatively determines that applicable corporation status is no longer appropriate. A single year below $1 billion does not end the obligation.²

The Simplified Screening Method

Because the full AFSI calculation is intricate and the regulations remain in proposed form, the IRS lets corporations apply a simplified test to screen themselves out. Under IRS Notice 2025-27, a corporation can run the applicable corporation test using a reduced threshold of $800 million instead of $1 billion, and, for foreign-parented groups, $80 million instead of $100 million on the U.S. income prong.³

A corporation that comes in below the reduced thresholds can conclude it is not an applicable corporation without doing the full computation. Exceeding them isn’t automatic the other way. The company must still work through the full statutory test or the proposed regulations to know where it stands.

How Adjusted Financial Statement Income Is Calculated

AFSI starts with the net income or loss on the corporation’s applicable financial statement. The IRS ranks statements in priority order: SEC filings such as the 10-K rank highest, then audited statements prepared for creditors or shareholders under GAAP, then statements filed with other government agencies, then unaudited statements. If none exist, the federal income tax return is the fallback.⁴

From that starting figure, the statute layers on adjustments to reconcile the differences between financial and tax accounting:

Related entities. Consolidated-return groups compute AFSI at the group level. For unconsolidated subsidiaries, only dividends received and amounts already includible in gross income count. Partnership income is limited to the corporation’s distributive share.⁵
Foreign income. U.S. shareholders of controlled foreign corporations include their pro rata share of items on the foreign subsidiary’s financial statement, not just the amounts picked up under regular Subpart F or GILTI rules.⁵
Depreciation. Book depreciation on tangible property is replaced with tax depreciation allowed under the regular tax code, which is usually faster and reduces AFSI. The IRS has issued interim guidance on how embedded depreciation in net operating loss carryovers interacts with AFSI.⁶

How the Tax Is Computed

The CAMT is a floor, not a flat 15% bill. The tentative minimum tax equals 15% of AFSI, reduced by any CAMT foreign tax credit. The actual CAMT owed is the amount by which that tentative minimum tax exceeds the corporation’s regular tax liability plus any tax owed under the base erosion and anti-abuse tax (BEAT). If regular tax plus BEAT already meets or exceeds 15% of AFSI, the CAMT adds nothing.⁷

The CAMT foreign tax credit has two pieces. For controlled foreign corporations, the credit is the lesser of the corporation’s share of foreign taxes shown on the subsidiary’s financial statement or 15% of the income adjustment attributable to those foreign operations. For taxes a domestic corporation pays directly to foreign governments, the credit equals those taxes to the extent they appear on the applicable financial statement and are paid or accrued for federal tax purposes. Excess foreign tax credits from controlled foreign corporations carry forward for five years.²

The Minimum Tax Credit

Any CAMT paid in a given year generates a minimum tax credit that carries forward indefinitely. In a later year when regular tax exceeds the tentative minimum tax, the credit can offset the difference. It is capped at the excess of regular tax, reduced by most other credits, plus BEAT, over the tentative minimum tax for that year.⁸

Because of the credit, the CAMT functions more like a timing shift than a permanent tax increase for many corporations. A company that pays $50 million in CAMT this year because its regular tax fell short of the floor can recover that amount in later years when regular tax rises above 15% of AFSI. The credit never expires, but it cannot push liability below the tentative minimum tax for the year it is claimed.

Estimated Payments and Penalty Relief

Corporations generally make quarterly estimated tax payments, and underpayment triggers an addition to tax based on the federal short-term interest rate applied to the shortfall for the period it remains unpaid.⁹ The IRS has repeatedly waived the estimated tax penalty for the CAMT portion of a corporation’s liability while the rules take shape. For tax years beginning in 2025, corporations can exclude their CAMT liability when calculating required estimated payments without facing a penalty.³

The waiver covers tax years beginning after December 31, 2024, and before January 1, 2026. It does not extend to tax years beginning in 2026 under current guidance. Corporations filing 2026 returns should assume their estimated payments must account for CAMT liability unless the IRS issues a new notice. Even during the waiver period, corporations must still file Form 2220 with their return and enter an estimated tax penalty amount on Line 34 of Form 1120, even if that amount is zero. Skipping that step can generate an automated penalty notice that then requires an abatement request to resolve.¹⁰

Filing on Form 4626

Corporations report the CAMT on Form 4626, Alternative Minimum Tax — Corporations, attached to the annual Form 1120 and filed by the return’s due date, including extensions.⁴ The form does double duty. It is used to determine whether a corporation is an applicable corporation and to calculate the tax when it is.¹¹ Corporations relying on the simplified safe harbor to screen out of applicable corporation status should follow the Form 4626 instructions to document that conclusion. Tax departments should also coordinate with the team responsible for SEC reporting, since the IRS will cross-reference AFSI against publicly filed financial statements.

If a corporation underpays the tax shown on its return, the standard failure-to-pay penalty applies: 0.5% of the unpaid amount for each month or partial month the balance remains outstanding, capped at 25%.¹² Records supporting the CAMT calculation should be kept for at least three years from the filing date, matching the general statute of limitations for income tax returns. Corporations carrying forward minimum tax credits should retain supporting documentation for as long as the credit remains unused, because the IRS can examine the year the credit originated when it is claimed in a later year.¹³

1
Internal Revenue Service. Corporate Alternative Minimum Tax
2
Office of the Law Revision Counsel. 26 USC 59 – Other Definitions and Special Rules
3
Internal Revenue Service. Notice 2025-27 – Waiver of Certain Additions to Tax Under Section 6655
4
Internal Revenue Service. Instructions for Form 4626
5
Office of the Law Revision Counsel. 26 USC 56A – Adjusted Financial Statement Income
6
Internal Revenue Service. Additional Interim Guidance for the Application of the Corporate Alternative Minimum Tax
7
Office of the Law Revision Counsel. 26 USC 55 – Alternative Minimum Tax Imposed
8
Office of the Law Revision Counsel. 26 USC 53 – Credit for Prior Year Minimum Tax Liability
9
Office of the Law Revision Counsel. 26 U.S. Code 6655 – Failure by Corporation to Pay Estimated Income Tax
10
Internal Revenue Service. Instructions for Form 2220
11
Internal Revenue Service. About Form 4626, Alternative Minimum Tax – Corporations
12
Internal Revenue Service. Failure to Pay Penalty
13
Internal Revenue Service. How Long Should I Keep Records