Corporate alternative minimum tax: What businesses need to know

The corporate alternative minimum tax (CAMT) is a federal tax that is designed to ensure large corporations pay a minimum level of tax, regardless of deductions or credits. CAMT primarily targets corporations with at least $1 billion in average annual income. However, foreign-owned companies can face different thresholds. Unlike the regular corporate tax system, CAMT calculations rely on adjusted financial data rather than taxable income, which can have an impact on your tax liability.

What is the corporate alternative minimum tax?

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CAMT applies to businesses with an average annual AFSI of $1 billion or more over the past three years. If your corporation is foreign-owned, you must also consider CAMT if your U.S. income exceeds $100 million and the global parent meets the $1 billion threshold.

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CAMT was introduced under the Inflation Reduction Act of 2022 as part of a broader tax reform to address concerns that some highly profitable corporations were paying little to no federal income tax. Before CAMT, companies could use deductions, credits, and other tax strategies to reduce or eliminate their tax liability. This led to cases where businesses with billions in profits paid far less than the standard corporate tax rate.

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Lawmakers designed CAMT to close this gap and ensure that large corporations contribute a fair share of taxes. The tax law primarily affects businesses with significant differences between their financial statement income and taxable income. The Congressional Budget Office (CBO) projects that the CAMT will generate over $222 billion for the U.S. treasury between fiscal years 2022 and 2031.

How is CAMT different from traditional corporate taxes?

While both types of taxes apply to businesses, CAMT changes how taxable income is calculated and limits certain deductions and business credits.

1. CAMT is based on financial statement income, not taxable income
   Traditional corporate taxes use taxable income, which allows you to lower your tax bill through deductions and credits. CAMT, however, is based on adjusted financial statement income (AFSI)—the income you report to investors. Even if deductions reduce your taxable income, you may still owe CAMT.
2. Applies a flat 15% rate, while regular corporate tax rates vary
   The standard corporate tax rate is 21%, but deductions and credits often lower the effective rate paid by the corporation. CAMT sets a fixed 15% tax on AFSI, ensuring large corporations pay a minimum amount regardless of deductions.
3. Limits tax credits
   Under regular corporate tax rules, you can use credits—like R&D, foreign tax, and investment credits—to lower your tax bill. CAMT restricts these credits, except R&D, and does not allow taxpayers to reduce their tax rate below 15% of AFSI.
4. CAMT treats depreciation differently
   Depreciation expense in the financial statements often differs from depreciation expense for tax purposes. CAMT follows financial statement depreciation but makes adjustments to reduce the impact on capital-intensive businesses like manufacturing.
5. Places limits on net operating losses (NOLs)
   If your business has net operating losses, you can use them to offset taxable income under standard tax rules. CAMT, however, caps NOL usage at 80% of AFSI. This means even with past losses, you may still owe CAMT.
6. CAMT changes how foreign income is taxed
   Both tax systems apply to multinational corporations, but CAMT includes foreign subsidiaries’ income differently. It counts a broader range of global earnings and allows only limited foreign tax credits. This increases tax liability for companies with major international operations.
7. CAMT affects fewer corporations than regular corporate taxes
   The Joint Committee on Taxation estimates only about 150 applicable corporations will have to pay CAMT. In contrast, regular corporate taxes apply to nearly all businesses. Industries like technology, finance, and manufacturing have the most significant impact due to book and taxable income differences.

Calculating your CAMT

Each tax year, you must calculate your corporate alternative minimum tax (CAMT) to determine whether your business owes additional taxes. To do this, you first need to determine your adjusted financial statement income:

Step 1: Calculating Adjusted Financial Statement Income (AFSI)

AFSI is different from taxable income because it is based on the net income reported in your financial statements, not what you report to the Internal Revenue Service. You must adjust this number before applying the 15% tax.

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You need to start with your net income from financial statements and make the following adjustments:

• Include foreign subsidiary income: Even if some of this income is not taxed under regular corporate tax rules, you must add it back into your AFSI calculation.
• Adjust depreciation expenses: Businesses often calculate depreciation differently for financial reporting and income tax purposes. Tax depreciation is often higher than book depreciation, which can lower your aggregate AFSI.
• Limit net operating loss (NOL) deductions: If your business has past losses carried forward to offset income, you can only use them to reduce up to 80% of your AFSI in a given taxable year.
• Account for tax-exempt income: Certain tax-exempt earnings, such as interest from municipal bonds, may need to be included in AFSI, even though they are typically excluded from regular corporate tax calculations.

Once you make these adjustments, you arrive at your applicable financial statement.

Step 2: Applying the CAMT formula

After determining your adjusted financial statement income (AFSI), you can calculate your CAMT liability. First, apply the flat 15% tax rate to AFSI. This gives you the preliminary CAMT amount before considering any tax credits.

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You must then subtract any eligible credits to adjust your final liability. The research and development (R&D) tax credit can directly lower your CAMT obligation. On the other hand, the foreign tax credits can offset only up to 80% of your CAMT liability if your corporation operates internationally.

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Once tax credits are applied, compare your CAMT liability with your regular corporate tax liability. Your standard corporate tax is calculated under the standard 21% corporate tax rate. This is based on your taxable income after applying deductions, losses, and standard corporate tax adjustments.

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Now, compare the two amounts:

• If your regular corporate tax liability is higher than your CAMT liability, you pay the regular corporate tax amount.
• If your CAMT liability is higher, you must pay the difference between the two amounts as additional tax.

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This system ensures that highly profitable corporations, even those using deductions and tax strategies, still pay a minimum effective tax rate of 15%.

Step 3: Carrying forward CAMT credits

If you pay CAMT in one year but owe less under regular corporate tax rules in the future, you can carry forward CAMT credits to lower your tax liability. These credits act as a refundable tax benefit, allowing you to use them when your regular corporate tax is higher than your CAMT liability.

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However, if it still applies, they cannot reduce your tax below the CAMT threshold. This rule ensures that corporations meet the minimum tax requirement while avoiding overpayment.

Impacts of CAMT on businesses

The corporate alternative minimum tax (CAMT) changes how large corporations calculate and pay taxes. It reduces the gap between book and taxable income, making corporate taxation more consistent.

Financial reporting challenges

Since CAMT is based on adjusted financial statement income, you must carefully align book income with tax calculations. This requires changes in financial accounting methods, disclosure practices, and tax provisions to meet regulatory requirements.

Increased reporting complexity

CAMT requires clear financial disclosures on tax liabilities. You need to explain book-tax differences, deferred tax impacts, and credit limitations in your financial statements. Missing or unclear details can mislead investors by falsely perceiving a company's tax obligations, profitability, and future cash flow.

Reassessment of deferred tax assets (DTAs) and deferred tax liabilities

A deferred tax asset lowers your tax liability in future years, and a deferred tax liability increases your tax liability. CAMT limits how corporations can use tax credits and net operating losses (NOLs), which directly impacts DTAs and deferred tax liabilities on financial statements. This can reduce the future tax benefits available, affect cash flow projections, and require companies to adjust their long-term tax planning strategies to account for higher minimum tax payments and restricted credit usage.

Compliance with SEC and IRS regulations

You must ensure that tax reporting processes meet the SEC and IRS’s proposed regulations. This would help you maintain accurate financial reporting, avoid legal penalties, and maintain investor trust. Failing to meet these requirements can lead to audits, fines, and reputational damage, negatively impacting stock value and stakeholder confidence.

Implications for multinational corporations

As a foreign-parented multinational group, you must keep track of your foreign earnings, tax credits, base erosion techniques, and cross-border transactions to calculate your tax liability correctly. However, CAMT restrictions can make this calculation complicated.

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A key impact is the inclusion of foreign subsidiary income in AFSI. Under CAMT, you must include certain foreign earnings and distributions, even if they were not taxed under regular U.S. corporate tax rules. These earnings include:

• Controlled foreign corporation (CFC) income
• Foreign branch income
• Partnership and joint venture income
• Disregarded entity income
• Previously untaxed reinvested earnings

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This increases your tax base and may lead to higher tax liability if your company operates in multiple countries.

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On the other hand, transfer pricing and intercompany transactions may also require closer review. CAMT uses book income instead of taxable income, which may reduce the effectiveness of traditional transfer pricing strategies.

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You must assess how intercompany pricing, cross-border services, and royalty payments will impact your CAMT calculations. If done incorrectly, this could inflate your AFSI and increase your CAMT obligation.

Compliance and reporting requirements for CAMT

Complying with the corporate alternative minimum tax requires you to meet specific reporting, documentation, and filing requirements that have been set by the IRS. These requirements ensure that corporations accurately calculate their AFSI, apply the CAMT rate correctly, and report their tax liability transparently.

1. CAMT calculation and disclosure

If your corporation meets the $1 billion AFSI threshold, you must calculate CAMT liability each year. This includes:

• Adjusting book income for foreign earnings, depreciation, and tax credits.
• Applying the 15% CAMT rate and comparing it to your regular corporate tax liability.
• Report any CAMT owed and document adjustments in your financial statements.

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The IRS requires you to keep detailed records of CAMT calculations for transparency in tax filings and financial reporting.

2. IRS filing and payment requirements

If your company is subject to CAMT, you must comply with strict IRS filing and payment obligations to avoid penalties. Each year, you must file a tax return using Form 1120, which would require additional CAMT-related disclosures.

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These disclosures must detail how your company calculates AFSI, including adjustments for foreign earnings, depreciation, and net operating losses. You must also clearly compare your CAMT and regular corporate tax liability, showing how the 15% CAMT tax rate applies to AFSI.

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In addition to annual filing, you must make quarterly estimated CAMT payments following the same schedule as regular corporate taxes. These payments are due each year on April 15, June 15, September 15, and December 15. If you underpay or miss a payment, you may face interest charges and IRS penalties of up to 25% on unpaid taxes.

3. Impact on financial statements and SEC compliance

If your company is publicly traded, you must disclose CAMT liabilities in your financial statements under SEC rules. This includes:

• Explaining book-tax differences that affect CAMT calculations.
• Reporting changes to deferred tax assets (DTAs) and deferred tax liabilities caused by CAMT.
• Ensuring tax reporting follows GAAP (Generally Accepted Accounting Principles).

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If you do not disclose CAMT liabilities correctly, regulators will scrutinize your filings, and investors can question your financial transparency, tax compliance, and earnings projections. This can further lead to audits or penalties that can increase your compliance burden and legal risks.

How to prepare your business for CAMT

Preparing for CAMT requires strong coordination across departments. Your tax team must collaborate with finance, accounting, and legal teams to track adjusted financial statement income, apply tax credits accurately, and meet reporting requirements. Accounting tools can also help simplify complex book income adjustments, improving efficiency and accuracy.

Assessing Your Tax Exposure

To stay tax compliant, you must evaluate how much tax your business may owe under CAMT and identify factors affecting your tax liability. This will help you understand if your company meets the $1 billion AFSI threshold.

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You should start by reviewing your financial statements, tax adjustments, and eligible deductions. Identify income sources that CAMT includes but regular corporate tax rules exclude, such as foreign subsidiary earnings and book-tax differences. You should also check how CAMT will adjust depreciation, amortization, net operating losses (NOLs), and tax credits to figure out if you owe any additional taxes.

Using Technology for Compliance

Manual tax calculations increase the risk of errors or missed deductions. Accounting software and expense management platforms can automate the tracking of adjusted financial statement income (AFSI), reconcile book-tax differences, and ensure accurate reporting. Streamlining these processes reduces the risk of errors and maintains compliance with IRS requirements.

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You can maintain your records effortlessly with the help of accounting automation and receipt-matching features. The built-in automated documentation helps your business stay audit-ready year-round, reducing the stress of last-minute reconciliations and year-end accounting tasks.

Stay ahead of corporate taxes with smart CAMT strategies

Planning ahead for corporate alternative minimum tax (CAMT) helps you lower your tax liability, stay compliant, and manage cash flow effectively. A strong tax strategy allows you to use deductions wisely, maximize credits, and keep accurate financial records. This reduces the risk of unexpected tax bills and last-minute filing issues.

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By tracking adjusted financial statement income (AFSI) year-round, you can identify CAMT exposure early. This helps you adjust spending, allocate resources efficiently, and time deductions properly before tax deadlines.

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A proactive approach to CAMT gives your business greater financial control, reduces administrative workload, and improves overall tax efficiency.