Tax Cuts and Jobs Act Blended Rate for Federal Income Tax for Businesses

According to the provision, a corporation with a fiscal year that includes Jan. 1, 2018 will pay federal income tax using a blended tax rate and not the flat 21% tax rate under the TCJA that would generally apply to taxable years beginning after Dec. 31, 2017.

What You Need to Know

In order to calculate the federal income tax for fiscal years that include Jan. 1, 2018, these corporations will first calculate their tax for the entire taxable year using the tax rates in effect prior to TCJA. Then they will calculate their tax using the new 21% rate, and proportion each tax amount based on the number of days in the taxable year when the different rates were in effect.  The sum of these two amounts is the corporation’s federal income tax for the fiscal year.

This blended rate applies to all fiscal year corporations whose fiscal year includes Jan. 1, 2018.  For any corporations to whom this provision would apply that have already filed their federal income tax returns, who did not apply the blended rate, it is recommended that they file an amended return.

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