The Ultimate Guide to IC-DISC Commission Calculation 2026
The IC-DISC commission calculation has taken on renewed importance as several key provisions of the Tax Cuts and Jobs Act (TCJA) are scheduled to sunset in the coming years. Chief among them is Section 199A, which currently allows many pass-through exporters to deduct up to 20% of qualified business income.
If Congress allows this provision to expire, ordinary income rates for many exporters could increase materially, widening the tax rate spread between deductible IC-DISC commissions and qualified dividend income.
For many pass-through businesses, this could significantly expand the potential “tax arbitrage” created by an IC-DISC structure. Depending on shareholder circumstances, the effective federal rate differential may increase from single-digit levels under current law to potentially mid-teens percentages.
Capturing these savings requires precise application of the IRS pricing rules under Section 994, including proper selection between the 4% Qualified Export Receipts method and the 50% Combined Taxable Income method to determine the maximum allowable commission.
Here’s what’s included:
- How the IC-DISC Commission Works
- The Two Primary Statutory Pricing Methods
- Qualifying the Sale
- IC-DISC vs. FDII: Which is Better for 2026?
- Advanced Optimization
- FAQs
- Why Export Tax Management?
How the IC-DISC Commission Works
The IC-DISC is a “paper” entity that earns a commission from a related U.S. exporter. This commission is deductible to the exporter at ordinary income rates (up to 37%) and is received tax-free by the IC-DISC. When distributed to shareholders as dividends, it is taxed at the preferential qualified dividend rate (typically 23.8% including NIIT).
The goal of the IC-DISC commission calculation is to legally maximize this deductible payment to shift as much profit as possible from high-tax ordinary income to low-tax dividend income.
The Two Primary Statutory Pricing Methods
The IRS allows exporters to choose between two safe-harbor methods for calculating the commission. Each year, you can select the method that yields the highest savings for your specific business model.
1. The 50% Combined Taxable Income (CTI) Method
This method allows the IC-DISC to earn a commission equal to 50% of the net profit generated from qualified export sales.
- Best for: High-margin industries where profitability is significant, such as Software exporters and Architects and Engineers.
- Bonus: You can add 10% of “Export Promotion Expenses” (EPE) to this total to further increase the commission.
2. The 4% Qualified Export Receipts (QER) Method
This method is based on top-line revenue rather than bottom-line profit. The commission is 4% of “Qualified Export Receipts.”
- Best for: High-volume, low-margin sectors like Agriculture, Seafood, or wholesale distribution.
- The Guardrail: Under the IC-DISC No-Loss Rule, the commission cannot exceed 100% of the CTI for those specific sales.
20+ Years IC-DISC Experience
Unlock Significant Tax Benefits with IC-DISC
Our objectives are simple: to provide you with maximum export tax savings, while delivering unmatched personal attention by our staff of CPAs. Schedule a free consultation today to discuss how Export Tax Management can help you.
Schedule Free ConsultationQualifying the Sale: The “Destination” and “Content” Tests
Before you can perform an IC-DISC commission calculation, every transaction must pass two critical IRS tests:
- The Destination Test: The property must be sent outside the United States. This is often proven through bills of lading or export declarations.
- The U.S. Content Test: The product must be manufactured, produced, grown, or extracted in the U.S. At least 50% of the value of the final product must be attributable to U.S. content (labor and materials).
For companies in Metal Fabrication or Manufacturing, documenting the “conversion” process in the U.S. is essential to surviving an audit.
IC-DISC vs. FDII: Which is Better for 2026?
Many corporations evaluate the Foreign Derived Intangible Income (FDII) deduction alongside the IC-DISC.
- C-Corporations: Often benefit more from FDII, which provides a 13.125% effective tax rate on export income.
- Pass-Through Entities (S-Corps/LLCs): Usually find the IC-DISC superior, especially since FDII does not offer the dividend rate arbitrage that the IC-DISC provides to individual shareholders.
Advanced Optimization: Transaction-by-Transaction (TxT)
Most generalist CPAs perform an “aggregate” calculation, calculating one commission for the entire company. In 2026, this approach is outdated and leaves significant money on the table.
At Export Tax Management, we utilize Transaction-by-Transaction (TxT) analysis. This involves:
- ERP Data Extraction: We analyze every individual invoice or line item.
- Method Selection: We apply the 4% method to low-margin items and the 50% method to high-margin items.
- Grouping: We group similar transactions strategically by product line or SIC codes to mitigate the impact of the No-Loss rule.
IC-DISC Commission Calculation FAQs
Yes, the IRS allows you to choose the method (4% or 50% CTI) annually based on what provides the greatest tax benefit. You can even use different methods for different product lines within the same year.
EPE are expenses incurred by the exporter to help generate foreign sales. They can include international travel, participation in foreign trade shows, and even a portion of salaries for export-focused staff. Including these in your IC-DISC commission calculation increases the 50% CTI commission by 10% of the EPE total.
Under the IC-DISC commission payment rules, a failure to pay a “reasonable estimate” of the commission within 60 days of the year-end can result in the DISC being disqualified. This would make all export income subject to standard ordinary tax rates.
No, the IC-DISC is a “statutory” or “paper” corporation. It does not need physical substance, employees, or office space, provided it meets the requirements for a separate bank account and maintains its own books and records.
20+ Years IC-DISC Experience
Unlock Significant Tax Benefits with IC-DISC
Our objectives are simple: to provide you with maximum export tax savings, while delivering unmatched personal attention by our staff of CPAs. Schedule a free consultation today to discuss how Export Tax Management can help you.
Schedule Free ConsultationWhy Export Tax Management?
The IC-DISC commission calculation is a specialized engineering task, not just an accounting function. We help U.S. exporters at every stage:
- IC-DISC Incorporation & Implementation: Setting up your structure correctly from day one.
- Annual Compliance: Rigorous data analysis and form preparation.
- Audit Defense: Representing you before the IRS if your calculations are challenged.
Ready to Maximize Your Savings?
Don’t settle for “basic” calculations. Let our experts run a complimentary TxT diagnostic on your 2026 export data.
Contact Export Tax Management today for a free consultation.
