US Corporate Tax Overview Taxes to Pay After Company Registration

American companies, once registered, are required to pay various types of taxes. These taxes can be broadly categorized into federal taxes, state taxes, and local taxes. Understanding these obligations is crucial for any business aiming to comply with legal requirements and maintain financial health.

At the federal level, corporations are subject to income tax on their profits. The U.S. corporate income tax rate stands at 21%, as established by the Tax Cuts and Jobs Act of 2017. This rate applies to the net income earned by the corporation after deducting allowable expenses. It's important to note that this rate is a flat rate, unlike the progressive rates applied to individual income tax. Companies must file Form 1120 with the Internal Revenue Service IRS annually to report their taxable income and calculate their federal income tax liability.

In addition to federal income tax, businesses may also be liable for payroll taxes. Payroll taxes include Social Security and Medicare taxes, collectively known as FICA Federal Insurance Contributions Act taxes. Employers are responsible for withholding a portion of employees' wages for Social Security and Medicare taxes, while also matching those contributions. For 2024, the Social Security tax rate is 6.2% for employers and employees, up to a wage base limit of $160,200. The Medicare tax rate is 1.45% each for employers and employees, with no wage base limit.

Another significant federal tax obligation is excise tax. This tax applies to specific goods and services, such as gasoline, alcohol, and tobacco products. If a company operates in an industry that involves these products, it will need to account for excise tax payments. For example, a beverage manufacturer producing alcoholic drinks would be subject to excise tax on its products.

State-level taxation varies significantly depending on the jurisdiction. While some states impose a corporate income tax, others have no corporate income tax at all. As of 2024, there are nine states that do not levy a corporate income tax Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming. In contrast, states like California and New York impose corporate income taxes at rates that can reach up to 8.84% and 6.5%, respectively. Companies operating in multiple states must navigate these varying tax landscapes carefully.

Sales tax is another common state-level obligation for businesses. While not all states collect sales tax, those that do require businesses to charge customers a percentage of the purchase price. The exact rate varies by location and can range from a few percent to over 10%. Businesses that sell goods or services across state lines must understand the sales tax rules of each jurisdiction they operate in to ensure compliance.

Local taxes represent yet another layer of complexity for businesses. Many cities and counties impose additional taxes on businesses, including property taxes, franchise taxes, and local sales taxes. Property taxes are particularly relevant for businesses that own real estate. These taxes are typically assessed based on the value of the property and paid annually. Franchise taxes, on the other hand, are fees charged by certain states for the privilege of doing business within their borders. For instance, Texas imposes a franchise tax on most active businesses at a rate of 0.375% to 0.75% of margin.

Environmental taxes are another consideration for some businesses. These taxes apply to activities that could harm the environment, such as the extraction of natural resources or the disposal of hazardous waste. Companies engaged in these activities may need to pay environmental taxes, which fund programs aimed at protecting the environment.

For small businesses, the tax landscape can be particularly challenging due to limited resources. Many small businesses rely on professional tax advisors to help them navigate the complexities of federal, state, and local tax obligations. Additionally, the IRS offers various resources and publications to assist small businesses in understanding their tax responsibilities.

In recent news, many businesses have been impacted by changes in tax laws and regulations. For example, the Inflation Reduction Act of 2024 introduced new tax incentives for renewable energy projects, encouraging companies to invest in sustainable practices. Similarly, the American Rescue Plan Act provided tax credits for businesses affected by the pandemic, helping them recover from economic hardships.

Understanding and complying with tax obligations is essential for any American company. Failure to meet these obligations can result in penalties, interest charges, and even legal consequences. By staying informed about current tax laws and seeking professional advice when necessary, businesses can ensure they remain compliant and financially stable.