What is the difference between a qualified vs. nonqualified personal service corporation?

[TaxGuyBill]

I'm not aware of a difference.

"Qualified" just means that it *IS* a Personal Service Corporation because it meets the definition.  Nonqualified would just mean it is NOT a Personal Service Corporation.  Unfortunately, the is one thing you DON'T want to qualify for.

[accoun5]

Thanks-so am I correct that prior to tax year 2018, qualified PSCs were subject to 35% tax and the nonqualified weren't?

[George4Tacks · Accepted solution]

How about the usual Qualified :

Eligibility for Qualified Personal Service Corporations

Because there are significant tax advantages, many well paid professionals organize these unique types of C-Corporations.

The Internal Revenue Service (IRS) uses two tests to determine if a corporation is eligible to qualify as a personal service corporation:

1. More than 95 percent of the business’ activities are services provided by employee-owners in their respective industry.
2. 95 percent or more of the corporation’s stock must be held directly or indirectly through partnerships, S-Corporations, or other qualified personal service corporations, either by employees of the QPSC, former employees, estates of said individuals, or anyone who acquired stock though inheritance.

If these conditions are not met then we get nonqualified.

[George4Tacks]

When all else fails - READ THE INSTRUCTIONS. Every year has it's own kinks. SWhen all else fails - READ THE INSTRUCTIONS. Every year has it's own kinks. 

Here is a highlight segment from page 17 of the instructions for 2016 Form 1120