What is the corporate tax rate?
A corporate tax rate is the percentage a government applies to a corporation’s taxable profit (that is, revenue minus deductible business expenses). In the United States, the federal statutory corporate tax rate is a flat 21% for C corporations (the form of corporation that pays tax at the corporate level). States may add their own corporate taxes on top of the federal rate.
Key definitions
– Taxable income: company revenue less allowable business deductions (cost of goods sold, wages, rent, depreciation, etc.).
– Statutory (or statutory) rate: the official rate written into law (in the U.S., 21% federal for C corps as of the TCJA changes that took effect in 2018).
– Effective tax rate: the actual share of pre-tax profit a company pays after deductions, credits, and other tax adjustments.
– Double taxation: when corporate profits are taxed at the corporate level and then taxed again when distributed to shareholders as dividends.
– S corporation (S corp): a U.S. tax classification that lets income “pass through” to owners’ personal returns so the business itself generally does not pay federal corporate income tax.
How corporate tax works (brief)
1. Company records gross revenue for a tax year.
2. It subtracts allowable business expenses (COGS, operating expenses, salaries, depreciation, qualified R&D, etc.) to arrive at taxable income.
3. The taxable income is multiplied by the statutory corporate rate (federal 21% for C corps).
4. Tax credits, special deductions, and state corporate taxes can lower the final tax liability; many companies therefore pay an effective rate well below the statutory rate.
5. U.S. C corporations file Form 1120 and generally must file by the 15th day of the fourth month after their tax year ends (extensions are available).
Common deductible business expenses
– Cost of goods sold (COGS)
– Wages and employee benefits (health insurance, retirement plan contributions)
– Rent, utilities, travel and business insurance
– Professional fees (tax preparation, legal, bookkeeping)
– Interest expense and certain taxes paid
– Depreciation of business assets and qualified R&D expenses
Special considerations
– State corporate income taxes: States may charge additional corporate taxes; rates and rules vary widely.
– Tax planning, credits, subsidies, and international structures can materially lower a company’s effective tax rate.
– Choice of entity: S corps, partnerships, and sole proprietorships generally avoid corporate-level tax by passing income to owners, who then pay personal income tax.
– Economic incidence: Economists often say the statutory tax falls on the corporation, but the economic burden can be shifted to shareholders (lower returns), customers (higher prices), or employees (lower wages).
Is the 21% rate permanent?
No. The statutory rate is fixed by law but can be changed by future legislation. The current U.S. federal statutory rate of 21% was established by the Tax Cuts and Jobs Act (TCJA) enacted in 2017 and effective in 2018; prior to that, the top federal corporate rate was higher.
Who actually pays corporate income tax?
A corporation remits taxes based on its taxable income. However, who ultimately bears the economic cost can differ: shareholders may receive lower dividends or share-price appreciation, customers may face higher prices, and employees may face different wage outcomes. The legal payer is the corporation; the economic incidence depends on market and contractual conditions.
Short filing and payment checklist (U.S. C corporations)
– Confirm entity type (C corp vs S corp).
– Determine tax year (calendar or fiscal).
– Gather revenue and deductible expense records.
– Calculate taxable income and apply the 21% federal statutory rate.
– Apply credits and state tax rules to compute total tax due.
– Make quarterly estimated tax payments (mid-April, mid-June, mid-September, mid-December for calendar-year filers).
– File Form 1120 by the 15th day of the fourth month after year-end; request a six‑month extension if needed.
– Keep documentation for deductions and credits for at least the period required by tax law.
Worked numeric example
Assumptions (calendar-year C corporation):
– Gross revenue: $5,000,000
– Allowable expenses: COGS $2,000,000; salaries and benefits $1,000,000; R&D $200,000; depreciation $100,000; other operating expenses $200,000
– Federal statutory rate: 21%
– Tax credits: $50,000 (applied against tax)
– State corporate tax: 6% of taxable income
Step 1 — Compute taxable income:
Taxable income = 5,000,000 −
…3,500,000 = 1,500,000
Step 2 — Compute federal tax before and after credits:
– Federal tax (statutory 21%) = 1,500,000 × 0.21 = 315,000
– Less tax credits = 50,000
– Federal tax due after credits = 315,000 − 50,000 = 265,000
Step 3 — Compute state corporate tax:
– State tax (6% of taxable income) = 1,500,000 × 0.06 = 90,000
Step 4 — Compute total tax due and quarterly estimated payments:
– Total tax due = Federal after credits + State tax = 265,000 + 90,000 = 355,000
– If paid evenly as quarterly estimated payments: 355,000 ÷ 4 = 88,750 per quarter
– Note: many corporations use safe-harbor rules tied to prior-year tax, or different payment schedules; check IRS rules.
Quick numeric summary
– Taxable income: 1,500,000
– Federal tax before credits: 315,000
– Federal tax after credits: 265,000
– State tax: 90,000
– Total tax due: 355,000
– Quarterly estimated payment (equal installments): 88,750
Assumptions and caveats (important)
– This example assumes all listed expenses are fully deductible in the year incurred. Certain items can be limited, capitalized, or subject to special rules (for example, qualified research expenses, depreciation methods, Section 174 R&D capitalization rules).
– State tax rules vary: states may start with federal taxable income, then add/subtract adjustments and apportion income for multistate businesses.
– Tax credits may be nonrefundable, refundable, or have carryforward/carryback rules; some credits reduce federal tax liability dollar-for-dollar, others have limits.
– Net operating losses (NOLs), foreign income provisions (GILTI), or other special regimes can materially change the result.
– Corporate alternative minimum tax (AMT) for C corporations was repealed at the federal level by the Tax Cuts and Jobs Act for tax years after 2017, but other adjustments and taxes (e.g., BEAT, state AMTs) may apply.
Practical checklist before filing
– Reconcile book income to taxable income; prepare a schedule of permanent and temporary differences.
– Verify eligibility and documentation for each tax credit claimed.
– Confirm depreciation methods and useful lives used for tax purposes.
– Calculate state adjustments and apportionment factors if operating in multiple states.
– Prepare Form 1120 (or applicable state return) and confirm filing deadlines and extension procedures.
– Record quarterly estimated tax payments and retain proof of payment.
Where to read more (reputable sources)
– IRS — About Form 1120 (U.S. Corporation Income Tax Return): https://www.irs.gov/forms-pubs/about-form-1120
– IRS — Estimated Tax for Corporations: https://www.irs.gov/businesses/small-businesses-self-employed/corporate-estimated-tax
– IRS — Recordkeeping for Businesses: https://www.irs.gov/businesses/small-businesses-self-employed/recordkeeping
– Tax Foundation — U.S. Corporate Tax Rate: https://taxfoundation.org/us-corporate-tax-rate/
– Investopedia — Corporate Tax (overview): https://www.investopedia.com/terms/c/corporatetax.asp
Educational disclaimer
This information is for educational purposes only and is not individualized tax advice. Rules vary by jurisdiction and specific facts; consult a qualified tax professional or the IRS/state tax authorities for guidance on a particular situation.