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S Corporation Excess Net Passive Income Tax Calculator (Section 1375)

Is this entity in good shape, or are there warning signs?

Excess net passive income, the 25 percent of gross receipts test and the 21 percent tax for an S corporation with accumulated earnings and profits.

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Your figures
Example figuresIllustrative only. Type over them with your own.
Section 1375 tax
$9,800
21 percent of excess net passive income
25% of gross receipts
$100,000
Passive income over the 25% line
$50,000
Drawn to one scale
Section 1375 tax$9,800
25% of gross receipts$100,000
Passive income over the 25% line$50,000
Net passive income$140,000
Excess net passive income (capped at taxable income)$46,667
All results
MeasureResult
Section 1375 tax$9,800
25% of gross receipts$100,000
Passive income over the 25% line$50,000
Net passive income$140,000
Excess net passive income (capped at taxable income)$46,667
StatusTax applies
How this was worked out
Work shownrecomputed as you type
Excess net passive income = net passive income x (passive income - 25% x gross receipts) / passive income
Net passive income = passive investment income - directly connected deductions
Capped at taxable income; tax = 21% x excess net passive income
Applies only with accumulated earnings and profits at year end

Illustrative arithmetic on the figures you enter. Check the result against your firm's methodology before relying on it.

The formulas

  • Excess net passive income = net passive income x (passive income - 25% x gross receipts) / passive income
  • Net passive income = passive investment income - directly connected deductions
  • Capped at taxable income; tax = 21% x excess net passive income
  • Applies only with accumulated earnings and profits at year end

How it works

An S corporation that has accumulated earnings and profits from C corporation years and whose passive investment income is over 25 percent of gross receipts pays tax at the highest corporate rate on the excess net passive income. The excess net passive income is the share of net passive income that sits above the 25 percent line.

The amount cannot exceed taxable income computed without certain deductions, including the NOL deduction, and no credits offset the tax except the section 34 credit. The Secretary can waive the tax if the corporation in good faith believed it had no accumulated earnings and profits and distributed them within a reasonable time.

Illustrative figures only. Check the result against your firm's methodology before relying on it.

Common questions

Which income is passive investment income?

Section 1375 relies on the definition in the S corporation rules. Classify your income under that definition before entering it.

What if there are no accumulated earnings and profits?

No section 1375 tax applies.

Can the tax be waived?

Section 1375(d) lets the Secretary waive it for good faith mistakes about accumulated earnings and profits.

Sources

Runs in your browser. The figures you type are not sent to CORAA or stored. Check the result against your firm's methodology before relying on it.

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