Small Business Tax Rates

As a small business, you’ll usually pay federal, state, and possibly local income taxes on your taxable net income. The rates can vary based on your earnings and whether you operate as a corporation or a pass-through entity. While there are many other possible small business taxes, some common ones include sales and use taxes and employee payroll taxes.

Federal income taxes for small businesses

Small business income taxes may be at a flat rate or tiered depending on the type of business structure and your location. These taxes apply to your company’s remaining income after subtracting your business expenses and any available tax deductions, exemptions, and credits.

Corporations

If you have a C corporation, or you’ve elected for the IRS to treat your limited liability company (LLC) as one, you’ll pay the federal corporate tax rate on taxable profits. Starting in the 2018 tax year, the Tax Cuts and Jobs Act permanently changed this rate to a flat 21%.

Pass-through entities

You operate a pass-through entity if you have a sole proprietorship, S corporation, partnership, or LLC that isn’t treated as a C corporation. Since the profits pass down to you as an owner, your small business federal tax rate will be your normal personal income tax rate.

The percentage you pay will depend on your filing status and total taxable income for the year. The IRS updates the tax brackets annually. Currently, the graduated rates range from 10% to 37%, meaning that portions of your business income can be taxed at different rates.

Here’s an example of the current small business tax brackets and rates for individual taxpayers:

• 10%: $0 to $11,600
• 12%: $11,601 to $47,150
• 22%: $47,151 to $100,525
• 24%: $100,526 to $191,950
• 32%: $191,951 to $243,725
• 35%: $243,726 to $609,350
• 37%: $609,351 and over

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State income taxes for small businesses

Like with federal income taxes, your small business can pay either state corporate or personal income tax rates based on the entity type.

Corporations

If your small business is treated as a C corporation for federal tax purposes, your state will likely do the same. Corporate rates currently apply in 44 states and are as low as 0% and as high as 9.80%. They often vary by income, but several states do charge flat rates.

Here is a sample of current corporate tax rates for some populous states:

While some states (like Ohio and Texas) don’t have corporate taxes, they may still charge taxes on gross business receipts. Plus, you might pay local corporate taxes in any state.

Pass-through entities

In most states, you’ll pay your normal personal income tax rate on your pass-through entity’s taxable business income. These rates currently range from 0% to 13.30%. However, some states, such as California and Ohio, require or offer a special business state tax rate. 

Here is what these small business income tax rates currently look like in some major states:

Some exceptions, including Texas, make certain pass-through entities pay franchise taxes instead. You’ll also want to check local tax rates in your county or city.

Sales and use taxes

Most states require you to collect sales taxes from customers who purchase taxable services and goods. If you make out-of-state purchases for your business, you might also owe use taxes on those goods. You must regularly remit these taxes to the state’s taxation agency.

Take a look at these current base sales and use tax rates for select states:

Your small business will often owe additional county or city sales and use taxes. Check with your locality for the latest rates and requirements.

Payroll taxes

You must pay all applicable federal, state, and local payroll taxes if you have any employees. Two examples include the Federal Insurance Contributions Act (FICA) and unemployment taxes.

FICA taxes

FICA taxes fund the Social Security and Medicare systems and total 15.3% of each employee’s eligible gross earnings. They’re allocated 2.9% to Medicare and 12.4% to Social Security. As the employer, you pay 7.65% and withhold the other 7.65% from your employees’ pay. 

However, Social Security taxes only apply to the first $168,600 each employee earns in 2024. Plus, you must withhold an extra 0.9% from your employees’ paychecks if they earn enough ($125,000 to $250,000 based on filing status) to owe the additional Medicare tax.

Unemployment taxes

You’ll usually contribute taxes to the federal and state unemployment systems that compensate eligible employees out of work. While the federal rate is 6% on the first $7,000 that each eligible worker earns, you could pay as little as 0.6% based on a tax credit received for contributions to your state’s system.

At the state level, employees pay part of the unemployment taxes in Alaska, Pennsylvania, and New Jersey. However, as the employer, you are fully responsible in other locations. Wage bases and minimum and maximum rates vary widely by state, and the type of employer and how long you’ve been in business can impact rates.

How to calculate your small business taxes

Assume you’re a single taxpayer who owns a small business in Pennsylvania, and your taxable income is $75,000 after all expenses, exemptions, deductions, and credits. Let’s see how you would calculate your state and federal income taxes based on two business entities.

C corporation

Your federal corporate tax for small businesses would be 21% of $75,000, or $15,750. Based on Pennsylvania's 8.49% corporate tax rate, you would owe an additional $6,367.50. 

That brings you to $22,117.50 owed in federal and state corporate income taxes.

Sole proprietorship

As an individual, your federal income taxes would be calculated as 10% of the first $11,600 ($1,160), 12% of the next $35,550 ($4,266), and 22% of the remaining $27,850 ($6,127), which totals $11,553. Pennsylvania’s flat 3.07% personal income tax rate adds $2,302.50.

Your federal and state taxes due would be $13,855.50, much lower than with the C corporation.

Reducing your tax burden

Since your various business expenses reduce your taxable profit, document them carefully and report them on your small business tax return. Some examples include rent, wages, meals, depreciation, advertising, business mileage, office supplies, and startup costs.

IRS business tax deductions and credits can also help you save. For example, the federal qualified business income deduction for eligible pass-through entities can get you up to a 20% tax break on your small business income. Your state might also offer a deduction that exempts a large portion of your business earnings from taxes.

Check out our self-employment tax deductions guide to learn more.

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