A US company does not pay "business tax". It pays a stack of separate taxes, to separate authorities, on separate schedules, calculated on separate bases — and the stack changes depending on where you are, what you sell, whether you have employees, and which box you ticked when you formed the entity. Here is the whole stack, in order.
The four layers
Almost every US business tax falls into one of four layers. Getting these straight makes the rest of it navigable.
- Federal
- Paid to the IRS. Income tax on profits (or pass-through to owners), plus employment taxes if you have employees, plus excise taxes on certain goods.
- State
- Paid to your state's Department of Revenue. Corporate income tax in most states, plus sales tax collection, plus state unemployment insurance, plus — in some states — a franchise tax that has nothing to do with profit.
- Local
- Paid to a city or county. Property tax, local sales tax, business license fees, and in a few places a local income or gross receipts tax.
- Payroll
- Technically federal and state, but it behaves like its own layer because it runs on a different calendar and you are handling money that was never yours.
Federal income tax
How your business pays federal income tax depends almost entirely on entity type — specifically, whether the entity is taxed itself or passes its income through to its owners.
C-corporations pay at the entity level
A C-corp pays a flat 21% federal rate on taxable profits. Then, when profits are distributed as dividends, shareholders pay tax again on their personal returns. That is the double taxation everyone warns about, and it is real.
What the warning usually leaves out: double taxation only bites on distributed profit. Retained earnings — profit kept in the business — are taxed once, at the corporate level. For a company reinvesting everything into hiring and product and paying no dividends, the C-corp structure is not the penalty it is described as. That is a large part of why venture-backed startups are C-corps.
Pass-through entities do not
S-corporations, partnerships, and multi-member LLCs generally pay no federal income tax at the entity level. Profits and losses pass through to the owners, who report them on their personal returns via a Schedule K-1. The entity still files a return — it just reports rather than pays.
Federal forms and deadlines
| Entity type | Federal return | Due (calendar year) | Rule |
|---|---|---|---|
| C-corporation | Form 1120 | April 15 | 15th day of the 4th month after year-end |
| S-corporation | Form 1120-S | March 15 | 15th day of the 3rd month after year-end |
| Partnership / multi-member LLC | Form 1065 | March 15 | 15th day of the 3rd month after year-end |
| Single-member LLC (default) | Schedule C with Form 1040 | April 15 | Filed with the owner's personal return |
| Sole proprietorship | Schedule C with Form 1040 | April 15 | Filed with the owner's personal return |
| Any of the above, extended | Form 7004 (business) | — | Extends the filing deadline, never the payment deadline |
Estimated quarterly payments
Most profitable businesses cannot wait until the return is due to pay. Corporations expecting to owe $500 or more, and individuals (including pass-through owners) expecting to owe $1,000 or more, generally make estimated payments four times a year — typically mid-April, mid-June, mid-September, and mid-January. Underpay and you owe a penalty even if you settle up fully at filing.
This is the single most common way a first-profitable-year business gets hurt: the tax bill is real from month one, but nobody sends an invoice until March. If your books are not current, you have no idea what to set aside.
State income tax
Most states levy a corporate income tax on top of the federal one, and rates vary enough to matter. A handful — Wyoming, Nevada, and South Dakota among them — do not tax corporate income at all, which is a real part of why entities get formed there. At the other end, states like Minnesota and Illinois sit near or above 9.5%.
Two things trip people up. First, forming in a no-tax state does not exempt you from tax where you actually operate — you pay where you have nexus, meaning a real business connection, not where the paperwork lives. Second, if you operate across state lines you may need to apportion income between states and file in several of them.
State deadlines usually track the federal ones closely, but not always, and the forms are state-specific — California uses Form 100, New York uses CT-3. Your state's Department of Revenue is the authority.
Franchise tax — the one that surprises people
Roughly a dozen states charge a franchise tax: a fee for the privilege of operating as a registered entity in that state. The critical thing to understand is that it is usually not based on profit. It is charged on net worth, capital stock, authorized shares, gross receipts, or as a flat fee — which means a company that lost money all year can still owe it.
It is also additive. Franchise tax does not replace income tax; it sits alongside it.
- Delaware — where a large share of US companies are incorporated — calculates it on authorized shares or an assumed-par-value method. Startups that authorize ten million shares and use the wrong calculation method receive a shocking bill and then discover the other method would have produced a far smaller one.
- Texas uses a gross-receipts-based margin tax with a revenue threshold below which you owe nothing but may still need to file.
- California charges an annual minimum franchise tax on LLCs and corporations regardless of income.
- Alabama and Georgia take a simpler approach based on net worth or a flat fee.
Payroll taxes
The moment you have employees, you take on a fiduciary role: you withhold money from your employees' pay that was never yours, and you remit it. Getting this wrong is treated far more seriously than getting income tax wrong, because it is somebody else's money.
| Tax | Rate | Who pays | Base |
|---|---|---|---|
| Social Security (FICA) | 6.2% each side | Employer and employee | Wages up to an annual cap that is indexed each year |
| Medicare (FICA) | 1.45% each side | Employer and employee | All wages, no cap |
| Additional Medicare | 0.9% | Employee only | Wages above a threshold; employer withholds but does not match |
| FICA combined | 7.65% each side, 15.3% total | — | — |
| FUTA (federal unemployment) | 6.0%, usually 0.6% after credit | Employer only | First $7,000 per employee per year |
| SUTA (state unemployment) | Varies by state and your claims history | Employer, mostly | State-set wage base |
That FUTA credit is worth understanding: the statutory rate is 6.0%, but paying your state unemployment tax on time earns a credit of up to 5.4%, bringing the effective federal rate down to 0.6%. Pay your state late and you lose part of the credit — a small administrative slip that multiplies your federal unemployment tax by ten.
Payroll forms
- Form 941 — quarterly. Reports wages, withheld income tax, and FICA. Due at the end of the month following each quarter.
- Form 940 — annual FUTA return, due January 31.
- Form W-2 — to each employee by January 31, with Form W-3 to the Social Security Administration.
- Form 1099-NEC — for contractors paid $600 or more in a year, also due January 31.
- Deposits — separate from filing. Withheld taxes are deposited on a monthly or semiweekly schedule depending on your history, not when the return is due.
Self-employment tax
If you are a sole proprietor, a single-member LLC owner, or a general partner, nobody withholds FICA for you — so you pay both halves yourself as self-employment tax, at 15.3% on net self-employment earnings, reported on Schedule SE. You deduct half of it on your personal return. This is the number that shocks first-year freelancers, because it sits on top of ordinary income tax.
Sales tax
Sales tax is not your money and is not an expense — you collect it from your customer and hold it for the state. It shows up on your balance sheet as a liability, and treating collected sales tax as revenue is a classic small-business bookkeeping error that produces a nasty surprise at filing time.
The complexity is nexus: which states you have to collect for. Physical presence creates nexus. So does economic activity — after the 2018 South Dakota v. Wayfair decision, states can require collection based purely on sales volume into that state, with thresholds commonly set around $100,000 in sales or a set number of transactions per year. An e-commerce business selling nationwide can trigger obligations in dozens of states without ever setting foot in one.
Rates compound: state, county, city, and special districts stack, so a single address can carry four overlapping rates. Filing frequency is assigned by each state — monthly, quarterly, or annually — and it changes as your volume grows.
The other taxes
- Excise tax
- On specific goods and activities — fuel, alcohol, tobacco, firearms, air transport, certain communications. Generally reported on Form 720, quarterly. Most businesses never touch it; if you are in one of these industries it is unavoidable.
- Property tax
- Local, on real estate and — in many jurisdictions — on tangible business personal property: equipment, vehicles, furniture, sometimes inventory. The personal-property piece is the one businesses forget, because it requires an annual filing listing what you own.
- Gross receipts tax
- A tax on total revenue regardless of profit, used by states including Washington, Nevada, Ohio, and Texas, and by cities including San Francisco. Brutal for high-revenue, low-margin businesses, since you owe it in a loss-making year.
- Business license and registration fees
- Not glamorous, easily forgotten, and the most common cause of a company discovering it has been operating out of good standing in a state for two years.
How entity type changes everything
| Structure | Entity-level federal income tax | Owner pays | Self-employment tax | Return |
|---|---|---|---|---|
| Sole proprietorship | None | Ordinary rates on all profit | Yes, on all net profit | Schedule C |
| Single-member LLC | None by default | Ordinary rates on all profit | Yes, on all net profit | Schedule C |
| Partnership / multi-member LLC | None | Ordinary rates on their share | General partners yes | Form 1065 + K-1 |
| S-corporation | None | Ordinary rates on their share | Only on reasonable salary, not distributions | Form 1120-S + K-1 |
| C-corporation | 21% flat | Again on dividends received | No | Form 1120 |
The S-corp row is why the election exists. An owner-operator taking a reasonable salary plus distributions pays self-employment tax only on the salary portion, which can be a meaningful saving over a sole proprietorship at the same profit. "Reasonable" is doing heavy lifting in that sentence — pay yourself an implausibly low salary and the IRS will recharacterize the distributions, with penalties.
S-corp status also comes with real constraints: a cap on shareholder count, US-person shareholders only, and a single class of stock. That last one is why a company planning to raise venture capital does not elect S-corp status — preferred stock is a second class.
What this means for your books
Every tax above is calculated from your accounting records. Not from your bank balance, not from your invoices, not from a spreadsheet reconstructed in March — from a general ledger with each transaction coded to the right account.
The practical consequences of letting that slip are specific and expensive: you cannot make accurate estimated payments, so you either overpay and lend the government money interest-free, or underpay and take a penalty. You miss deductions because nobody remembered what a charge was for. You cannot tell a preparer what your taxable income is, so they charge you cleanup time at their hourly rate during their busiest month. And the whole thing lands in a panic in March, which is the most expensive possible moment to discover a problem.
Books that are current all year turn tax season into an export rather than an excavation.
Frequently asked questions
What taxes does a small business have to pay in the US?
Federal income tax (at the entity level for C-corps, passed through to owners otherwise), state income tax in most states, franchise tax in around a dozen states, payroll taxes if you have employees, self-employment tax if you are an owner-operator without payroll, sales tax where you have nexus, property tax on real estate and business equipment, and industry-specific excise taxes.
What is the federal corporate tax rate?
C-corporations pay a flat 21% federal rate on taxable profits. S-corporations, partnerships, and multi-member LLCs generally pay nothing at the entity level — their income passes through to owners who pay at their personal rates.
When are business taxes due?
For calendar-year filers: S-corporations and partnerships file by March 15, and C-corporations by April 15. Estimated payments are generally due in mid-April, mid-June, mid-September, and mid-January. Payroll returns on Form 941 are quarterly, and Form 940, W-2s, and 1099-NECs are due January 31.
Do I have to file if my business made no money?
Yes. Every active corporation files annually regardless of revenue or profit — a company with no income files a zero return. Late-filing penalties for partnerships and S-corporations are assessed per owner per month, so a company that assumed it owed nothing can still accumulate a substantial penalty.
What is franchise tax and do I owe it?
A state fee for the privilege of operating as a registered entity there, charged by roughly a dozen states. It is usually calculated on net worth, capital stock, authorized shares, or gross receipts rather than profit — so an unprofitable company can still owe it. It is charged in addition to income tax, not instead of it.
How much is self-employment tax?
15.3% on net self-employment earnings — both halves of Social Security and Medicare, since no employer is paying half for you. It is reported on Schedule SE, and half of it is deductible on your personal return. It applies on top of ordinary income tax.
Does forming in Delaware or Wyoming save me tax?
Usually not, and this is a persistent myth. You owe tax where you have nexus — where you actually operate — not where the paperwork lives. Forming in a no-income-tax state while operating elsewhere generally means registering as a foreign entity in your operating state and paying there anyway, plus a franchise tax and registered agent fee in the formation state.
Do I need to collect sales tax in every state?
Only where you have nexus. Physical presence creates it, and since the 2018 Wayfair decision so does economic activity above a state's threshold — commonly around $100,000 in sales or a set transaction count per year. Thresholds and rules differ by state, so a nationwide seller can owe collection in many states at once.
What happens if I misclassify an employee as a contractor?
You become liable for back payroll taxes on both the employer and employee halves, plus penalties and interest. The classification depends on the actual degree of control and the nature of the working relationship — not on what the contract says, and not on what either party would prefer.
Does Numbrr file my taxes?
The software does not file returns — it produces the books a preparer works from. Numbrr does sell CPA-led tax filing as a separate service covering federal and state returns, and the Numbrr One bundle includes it alongside bookkeeping and entity formation.