A corporate income tax (CIT) is levied by federal and state governments on business profits. Many companies are not subject to the CIT because they are taxed as pass-through businesses, with income reportable under the individual income tax.
Corporate Tax Rate
Since the Tax Cuts and Jobs Act (TCJA) of 2017, the statutory corporate income tax rate—state and federal combined—is 25.8 percent. The TCJA reduced the federal corporate tax rate from 35 percent to 21 percent, dropping the combined rate from 38.9 percent to 25.8 percent and bringing the U.S. nearer to the worldwide average.
State-level corporate income tax rates vary across the country. Six states (Nevada, Ohio, South Dakota, Texas, Washington, and Wyoming) levy no corporate income tax, while the other 44 states and the District of Columbia do tax corporate profits.
Explore the latest data on corporate rates around the world.
Corporate Tax Base
The CIT generally taxes a business’ profits, which are revenues (what a business makes in sales) minus costs (the cost of doing business).
However, costs of capital investments—such as equipment, machinery, and buildings—cannot be deducted when they incur. Instead, they have to be deducted over an extended period of time, inflating a business’ taxable income and thus increasing the cost of capital.
Carryforwards and carrybacks of net operating losses, as well as inventory valuation, also impact a business’ tax base.
Who Bears the Burden of the Corporate Income Tax?
Businesses in America broadly fall into two categories: C corporations, which pay the corporate income tax, and pass-throughs—such as partnerships, S corporations, LLCs, and sole proprietorships—which “pass” their income “through” to their owner’s income tax returns and pay the ordinary individual income tax.
While C corporations are required to pay the corporate income tax, the burden of the tax falls not only on the business but also on its consumers and employees through higher prices and lower wages.
Corporate Tax Revenue
Overall, corporate tax revenue as a percent of total tax revenue has been declining over the last 50 years. This is partly because C corporations tend to be taxed more heavily than pass-through businesses, which has led to a decline in C corporations and an increase in pass-through businesses.
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FAQs
The corporate tax rate is a tax levied on a corporation's profits, collected by a government as a source of income. It applies to a company's income, which is revenue minus expenses.
What is the current US corporate tax rate? ›
First things first: what is the federal corporate tax rate? The current corporate tax rate (federal) is 21%.
Who actually pays corporate income tax? ›
Who bears the burden of the corporate income tax? The burden is shared among stockholders, workers, and all investors. Shareholders bear most of the corporate income tax burden, but they aren't the only ones. Over time, others bear some of the burden because of a chain reaction that begins with the shareholders.
What is tax corporate income tax? ›
Base rate entity company tax rate
| Income year | Aggregated turnover threshold | Tax rate for all other companies |
|---|
| 2017–18 | $25m | 30.0% |
| 2018–19 to 2019–20 | $50m | 30.0% |
| 2020–21 | $50m | 30.0% |
| 2021–22 and future years | $50m | 30.0% |
Jun 19, 2024
Raising the corporate income tax is often promoted as a way to generate revenue for helpful government services. Unfortunately, higher corporate taxes typically hurt the very people they're supposed to help, because they lead to lost wages and fewer opportunities for many workers.
What is the minimum corporate income tax? ›
Under the CREATE Act, the prescribed MCIT for the period July 1,2020 until June 30, 2023 is one percent (1%). Effective July 1, 2023, the MCIT rate reverted to its previous rate of two percent (2%) based on the gross income of the corporation.
How to calculate federal corporate income tax? ›
Once you have the adjusted taxable income, you can multiply the value by 21% to get the total payable tax for the current year.
Is corporate income tax deductible? ›
The profit of a corporation is taxed to the corporation when earned, and then is taxed to the shareholders when distributed as dividends. This creates a double tax. The corporation does not get a tax deduction when it distributes dividends to shareholders. Shareholders cannot deduct any loss of the corporation.
How do corporations reduce taxable income? ›
Maximize deductions: A C corp can further reduce its earnings (the amount taxed at the federal level) by taking all possible deductions available to it, including (but not limited to) travel expenses, equipment rental, utilities, health plan costs, entertainment, consulting services, legal expenses, depreciation, ...
Who is subject to corporate income tax? ›
You must file California Corporation Franchise or Income Tax Return (Form 100) if the corporation is: Incorporated in California. Doing business in California. Registered to do business in California with the Secretary of State.
In addition to cutting tax rates since the 1980s, state policymakers have enacted several corporate tax breaks that reduce the share of income that corporations pay in California corporate taxes, and which restrict the revenue available for public services. • California's state budget would have received $13.3 billion ...
How much money does the government get from corporate taxes? ›
U.S. Tax Revenue by Type
| Sources of Government Revenue in the United States, 2022 |
|---|
| Social Insurance Taxes | 21.9% |
| Consumption Taxes | 15.7% |
| Property Taxes | 10.6% |
| Corporate Taxes | 6.5% |
3 more rowsMar 26, 2024
Since January 1, 2018, the nominal federal corporate tax rate in the United States of America is a flat 21% following the passage of the Tax Cuts and Jobs Act of 2017.
What is an example of a corporate income tax? ›
How Does Corporate Taxation Work? Imagine that a technology company earns $100 in profits on the sale of a new video game. It would then pay the federal corporate income tax rate of 21 percent on its profits, resulting in $79 in after-tax profits that it can distribute to shareholders as dividends.
How do I calculate corporation tax? ›
To calculate, you would add back any depreciation and client entertaining costs to the profit before accounts total, then subtract any capital allowances to arrive at the profit value that is liable tax.
What are two types of corporate tax? ›
Corporations can be taxed 2 different ways.
- C corporation. Generally taxed on their income and the owners are taxed on these earnings when distributed as payments or when the shareholder sells stock.
- S corporation.
Missouri corporate income tax is imposed upon Missouri taxable income. Missouri taxable income shall be so much of a corporation's federal taxable income for the taxable year with modification as is derived from sources within Missouri as provided.
How to calculate corporate tax rate? ›
You can easily figure out your effective tax rate by dividing the total tax by your taxable income from Form 1040. For corporations, the effective tax rate is calculated by dividing the total tax by earnings before interest.
