Accumulated Earnings and PHC Tax Rates

Very generally, the accumulated earnings tax is imposed on regular C corporations that accumulate unreasonable amounts of earnings and profits to avoid paying taxable dividends to their shareholders.

The personal holding company (PHC) tax is a penalty tax payable to certain C corporations on income that isn’t distributed to shareholders. To be subject to the tax, a corporation must: (a) at any time during the last half of the year, have more than 50% of its stock owned by five or fewer individuals and (b) derive at least 60% of its income from dividends, interest, annuities, rents, royalties, etc.

For tax years beginning after 2002 and before 2009, the accumulated earnings tax rate and PHC tax rate are reduced to 15%.