Last Updated: February 16, 2024, 12:56 pm by TRUiC Team

How Much Taxes Do Corporations Pay in 2024?

Corporations are incorporated business structures. They are required to pay a corporate tax rate of 21% in conjunction with several other common business taxes.

These include:

  • Estimated taxes
  • Employment taxes
  • Excise taxes

In this guide, we provide a preview of how the US tax law affects corporations, how taxable income is calculated, and what deductions shareholders of corporations are allowed to make.

Learn about the different types of taxes and their costs corporations have to pay.

What Is the Corporate Income Tax Rate?

The corporate tax rate in the US is 21%. This was reduced from 35% back in January 2018 following the introduction of the Tax Cuts and Jobs Act.

Corporations may have to comply with an additional corporate tax rate at a local or state level, but these can vary significantly depending on the state in question. 

These are also deductible, meaning that corporations can “subtract” them from their required 21% federal corporate tax rate. 

For example, if you have registered your corporation in North Carolina, you would pay a corporate state income tax of 2.5%. This amount — along with various other deductible expenses — would be subtracted from your federal taxable income (21%). 

Apart from corporate income tax, corporations are also taxed on a personal level at their shareholders’ personal tax returns (after dividends have been distributed). 

Dividends are separated into two categories in accordance with the IRS:

  • Qualified dividends: These are taxed at a rate that is identical to the capital gains tax and are usually lower than personal income tax rates
  • Nonqualified dividends: These are taxed at a person’s normal income tax rate.

In order for a dividend to be classified as “qualifying”, it needs to be:

  • Generated from “unhedged shares”
  • Held for a sufficiently long “holding period”
  • Provided by a domestic US company or a qualifying foreign company

This means that the same stream of revenue is taxed twice in a corporation (i.e., double taxation). This is not deductible. The corporate tax structure contrasts sharply with other “pass-through” business structures which are not subjected to a federal corporate tax rate. 

Generally speaking, this is one of the reasons that corporations are mostly suited towards medium or large-scale businesses which will have the necessary volume to take advantage of the increased financial opportunities which are available (e.g., increased tax deductions).

What Other Business Taxes Do Corporations Pay?

Besides income taxes paid at a corporate tax rate, corporations have to pay:

  • Estimated Taxes
  • Employment Taxes
  • Excise Taxes

Estimated Taxes

Estimated taxes are quarterly “pay-as-you-go” payments that you are required to make based on your “estimated” income for the period. These may be any type of taxable income that is not subject to withholding and includes:

  • Dividend income
  • Interest income
  • Capital gains income

If you do not have any income that is subject to automatic withholding, you are required by the IRS to file an 1120-W form. After your corporation’s annual tax filings are completed, you will then either pay your remaining tax obligations or submit a request to be reimbursed (e.g., if, following deductions, your corporation has paid more than its mandated corporate tax rate). 

For more information on estimated tax for corporations visit the IRS’ Instructions for Form 1120-W page.

Employment Taxes

If your corporation employs staff, you will need to withhold, deposit, and report all taxes related to their employment. 

Federal Income Taxes

Employers of corporations generally must withhold federal income taxes from their employees’ wages. These “withholdings” must be deposited in accordance with Publication 15 of the IRS. 

Corporations submit federal income taxes through form 941. For more instructions, see the IRS’ instructions for Form 941

Social Security and Medicare Taxes

Employers in corporations are required to withhold a percentage of their employees’ wages to cover the cost of their social security and Medicare tax. 

These must be deposited in accordance with the IRS. 

Additional Medicare Taxes

Employers are also required to withhold the 0.9% Additional Medicare Tax from their employees’ wages after they exceed the statutory “threshold amount”.

Not all individuals will be liable to pay for Additional Medicare Tax. 

Even when they are, the specific rate they will be subjected to will vary depending on their filing status:

  • Married filing jointly: $250,000 per annum
  • Married filing separate: Threshold amount of $125,000 per annum
  • Single, Head of Household, or Qualifying widow(er): Threshold amount of $200,000 per annum

For a more comprehensive understanding of Medicare taxes see the IRS’ questions and answers page.

Federal Unemployment (FUTA) Taxes

FUTA taxes are reported and paid separately from the federal income, social security, and Medicare taxes listed above.

The main difference between FUTA taxes and the rest is that these are not withheld from employees’ salaries, employers are required to pay for this themselves. 

For a guide on FUTA taxes, see the IRS instructions on filing Form 940.

Excise Taxes

Excise taxes are an indirect form of taxes levied on the sale or use of regulated products.

Products that are generally subject to excise taxes include:

  • Tobacco
  • Alcohol
  • Firearms
  • Fuel

This means that the amount of excise taxes that you will have to pay (and the forms you will have to fill) will ultimately depend on your business’s activities.

There are generally four different types of excise taxes forms that your corporation may need to use:

  • Form 720: This can encapsulate several broad categories:
    • Environmental taxes
    • Fuel taxes
    • Air transportation taxes
    • Tax on the first retail sale of trucks, tractors, and trailers
  • Form 2290: This is a specific tax on certain heavy vehicles which are used in public highways (generally relating to trucks, truck tractors, and buses that weigh 55,000 pounds or more.
  • Form 730: You will need to fill in Form 730 if your corporation is involved with gambling or wagering in any way.
  • Form 11-C: This covers any required federal occupational tax that your corporation may need to pay if it conducts any wagering-related activity. 

What Expenses Can Corporations Deduct?

Under US law, accepted tax-deductible expenses are the vast majority of “ordinary, necessary, and reasonable” business expenses allow corporations or other business entities to generate business income.

The IRS defines “ordinary, necessary, and reasonable” expenses as any expenses that are both helpful and appropriate for a business to operate profitably. 

Most of the more “conventional” business deductions are listed in Section 162 of the Internal Revenue Code, and include:

  • General and administrative costs
  • Vehicular expenses
  • Travel and entertainment expenses (only for business)
  • Employee benefits

Deductible expenses are also classified into “current” and “capitalized” categories. 

Whereas current expenses can be deducted in the year that they are paid in, capitalized ones must be paid over a specified period of time.

Similarly, there are a few expenses that are directly prohibited from being expensed — regardless of whether they satisfy the “ordinary, necessary, and reasonable” test we mentioned earlier or not. 

These include:

  • Work clothes
  • Bribes
  • Traffic tickets
  • All “unreasonably” large expenses

You may also be able to make certain deductions that relate to your corporation’s taxes:

  • Local and state income taxes
  • Property taxes
  • Sales taxes
  • Foreign taxes

This means that, in real terms, the corporate tax rate that corporations need to pay will only be applicable after these reductions have been made. If this is not done in time, then the corporation in question will be able to request reimbursement by submitting Form 850.

For more information, check out our guide to tax-deductible business expenses.

Frequently Asked Questions

Taxable income is the amount of your personal or corporate income that is subject to income taxes after you have made all of the possible expense deductions and accounted for all of your available exemptions.

This means that taxable income is less than gross income.

Whether or not LLCs are taxed similarly to corporations depends on whether it chooses to be taxed as an S corp or C corp. An LLC taxed as a C corp will need to pay corporate income tax.

That being said, owners of LLCs have what is known as “pass-through” taxation by default. This means that all of the business’s final profits are passed directly to its owners (in accordance with its operating agreement) and then all taxes are handled at a personal level (income tax).

Yes, since a corporation is an incorporated business structure, it is legally considered to be a separate entity to its owners. 

Consequently, it can make a profit, become legally liable, and live perpetually completely separately from its shareholders. 

This allows shareholders of corporations to have increased protection, as they know that even if their company goes insolvent in the future their personal assets will be completely protected unless they personally and voluntarily agreed to guarantee a business loan in the past.

If your corporation does not file its required taxes, you and your other shareholders will face heavy penalties such as fines and back taxes.

If a corporation continues to ignore tax filing notices from the IRS (or delinquency statements) then the IRS can attach liens on your property until all of your required fees are paid.

Registering a corporation is relatively simple — especially if you rely on incorporation services.

Even though your specific process will be dependent on your state of registration, you will want to follow these steps:

  • Find an available corporate name
  • Choose a registered agent
  • File your required formation documents with the state
  • Get an Employer Identification Number (EIN)

For a more thorough understanding of how to start a corporation, check out our state-specific How to Start a Corporation guides.