Corporate Tax in The United States - Distribution of Earnings

Distribution of Earnings

Shareholders of corporations are subject to corporate or individual income tax when corporate earnings are distributed. Such distribution of earnings is generally referred to as a dividend.

Dividends received by other corporations may be taxed at reduced rates, or exempt from taxation, if the dividends received deduction applies. Dividends received by individuals (if the dividend is a "qualified dividend") are taxed at reduced rates. Exceptions to shareholder taxation apply to certain nonroutine distributions, including distributions in liquidation of an 80% subsidiary or in complete termination of a shareholder's interest.

If a corporation makes a distribution in a non-cash form, it must pay tax on any gain in value of the property distributed.

The United States does not generally require withholding tax on the payment of dividends to shareholders. However, withholding tax is required if the shareholder is not a US citizen or resident or US corporation, or in some other circumstances (see Tax withholding in the United States).