What Taxes Does a Business Pay in the United States?

Introduction

Running a business in the United States means fulfilling various tax obligations, which differ depending on your business type and the state where you operate. Are you worried about missing important deadlines or falling behind on your taxes? Don’t worry!

This guide provides a clear and concise overview of the taxes you need to pay as a business owner, how they work, and why staying compliant is crucial for your business’s success.

1. Key Taxes Businesses Pay in the United States

In the U.S., businesses are subject to different types of taxes: federal, state, and local. Here are the most important ones:

1. Federal Income Tax

Federal income tax applies to the profits earned by your business. The tax rates depend on the business structure:

• Corporations (C-Corps): Subject to a flat federal tax rate of 21%.
• Pass-Through Entities (LLCs, S-Corps, Partnerships): Business income is reported on the owner’s personal tax return and taxed at individual rates, which range from 10% to 37%.
• Key deadline: March 15 for most businesses (with an extension option until October). Find out when you should file your company's U.S. income tax here.

Tax Tip: Deduct allowable business expenses, such as operational costs, to lower your taxable income and reduce your federal income tax liability.

2. Self-Employment Tax

• This tax applies only to U.S. residents, including sole proprietors, freelancers, and single-member LLC owners.
• It equals 15.3% of net earnings, covering Social Security and Medicare.
• Important: This is in addition to Federal Income Tax.

3. Sales Tax

Sales tax is a consumption tax applied to the sale of goods and services. This tax is collected at the point of sale and remitted to the state or local government.

• State-Specific Rates: Sales tax rates vary by state and often include additional local taxes.

Example: In California, the base state sales tax rate is 7.25%, but local taxes can raise the total rate to over 10% in some areas.

Key Compliance Tip: Register for a sales tax permit in every state where your business has a nexus (physical presence or significant activity).

4. Payroll Taxes

If your business has employees, payroll taxes are mandatory. These include:

• Federal Income Tax Withholding: Based on employees’ W-4 forms.
• Social Security Tax: 6.2% from both the employee and the employer.
• Medicare Tax: 1.45% from both the employee and the employer. An additional 0.9% is applied to high earners.
• Federal Unemployment Tax Act (FUTA): Employers pay 6% on the first $7,000 of each employee’s wages.

Withholding Tax:

If your business hires foreign individuals in the U.S., you must consider income withholding taxes. This tax applies to payments made to employees and contractors, ensuring compliance with federal tax laws. Rates and rules vary depending on the work relationship and tax treaties between the U.S. and the individual’s country.

For example, businesses often need to withhold a percentage of income from wages, interest, dividends, royalties, or rents paid to non-residents. Proper calculations are essential to avoid penalties and ensure IRS compliance.

Note: Employers contribute 50% of Social Security (12.4%) and Medicare (2.9%). State taxes may also apply depending on the situation. Contact us for help calculating and understanding the taxes your business owes in the U.S.

5. Franchise Tax

Is a fee charged by some states for the privilege of operating within their jurisdiction. Unlike income tax, franchise tax applies regardless of profitability.

• Example States: Delaware and Texas charge franchise taxes calculated based on revenue, net worth, or capital stock.

Tip: Consult a tax professional to understand how franchise taxes impact your business structure.

‍6. Property Tax

If your business owns real estate or personal property (e.g., equipment), you may owe property taxes. Rates and rules vary by location.

• Real Estate Taxes: Assessed annually based on property value.
• Business Personal Property Taxes: Some jurisdictions tax tangible business assets like machinery and furniture.

7. Excise Taxes

Apply to specific goods and activities, such as fuel, alcohol, tobacco, and certain environmental products. Businesses in these industries must comply with federal and state excise tax regulations.

2. State and Local Taxes

In addition to federal taxes, U.S. businesses must comply with state and local tax obligations. Examples include:

State income taxes

• No State Income Tax: States like Texas, Florida, and Wyoming do not charge corporate or individual income taxes.
• Variable Rates: States such as California and New York have progressive tax rates, often higher than the national average.

Local licenses and fees

Many cities and counties require additional payments to operate legally.

3. What Happens if You Don’t Pay Taxes on Time?

Failing to meet your tax obligations can have serious consequences:

• Fines and penalties: Interest accrues on unpaid taxes.
• License suspension: Some jurisdictions may revoke your operating permits.
• Loss of “Good Standing”: Your business could lose its legal status, affecting its reputation and operations.

Conclusion

Knowing and complying with the taxes your business must pay in the U.S. is essential to avoid legal problems and keep your business in good standing. From federal income taxes to state and local rates, preparation and expert advice are critical.

At Prodezk, we make navigating this process simple and efficient, ensuring your business complies with all regulations. Contact us and take your finances to the next level!

Related Articles:

• Guide to Filing Business Taxes in the U.S.
• Taxes in Florida
• U.S. Tax Season 2025
• Business Tax Table in the U.S