The federal corporate tax rate is a flat 21 percent on business profits

The federal corporate income tax rate is 21 percent. This rate applies to the taxable income of C corporations — the standard business structure for larger companies. A corporation pays this tax on its profits after deducting business expenses, salaries, interest, and other allowable costs.

This 21 percent rate has been in place since 2018, when the Tax Cuts and Jobs Act lowered it from 35 percent. Before that change, the rate had been 35 percent for many years. The rate is the same for all corporations regardless of size or industry — there are no brackets or variations based on how much profit a company makes.

It is important to understand that this is the federal rate only. States and some cities add their own corporate income taxes on top of the federal tax, so the total tax burden varies depending on where a business operates.

Key Takeaways

  • The federal corporate tax rate is a flat 21 percent on taxable business income, set by the Tax Cuts and Jobs Act of 2017.
  • This rate applies to C corporations but not to sole proprietorships, partnerships, or S corporations, which have different tax structures.
  • States and cities add their own corporate income taxes, so the total rate a business pays depends on its location.
  • A corporation's taxable income is calculated after subtracting business expenses, employee salaries, interest payments, and depreciation.

How the 21 percent rate applies to business income

When a corporation calculates its federal income tax, it starts with gross revenue — all the money the business brings in. Then it subtracts allowable business expenses: salaries and wages, rent, utilities, cost of goods sold, equipment depreciation, interest on business loans, and other ordinary operating costs. What remains is taxable income, and the corporation pays 21 percent of that amount to the federal government.

For example, if a corporation has $1 million in revenue and $600,000 in deductible expenses, its taxable income is $400,000. The federal tax owed is $84,000 (21 percent of $400,000). The corporation then files Form 1120 with the Internal Revenue Service to report this income and pay the tax.

Corporations must make estimated tax payments throughout the year rather than paying all at once. These payments are usually due in four installments: April 15, June 15, September 15, and December 15.

State and local corporate taxes add to the federal rate

The 21 percent federal rate is only part of the total tax a corporation owes. Most states impose their own corporate income tax, which ranges widely. Some states charge rates between 4 and 12 percent, while a few states have no corporate income tax at all — including Texas, Florida, Nevada, South Dakota, Washington, and Wyoming.

A few cities and counties also tax corporate income. New York City, for instance, adds a local corporate tax on top of the state rate. A business operating in multiple states may owe corporate taxes in each state where it has income or property.

The combined federal and state rate is what matters for a business's actual tax burden. A corporation in California, which has a state rate of 8.84 percent, pays roughly 29.84 percent in combined federal and state corporate income tax (before any local taxes). A corporation in Texas, which has no state corporate income tax, pays only the 21 percent federal rate.

Different business structures have different tax rules

The 21 percent corporate tax rate applies only to C corporations. Other business structures are taxed differently. A sole proprietorship, partnership, or S corporation does not pay corporate income tax at all. Instead, the business's income "passes through" to the owners' personal tax returns, and they pay individual income tax on it at their personal tax rates.

This pass-through structure can be an advantage or disadvantage depending on the owner's personal tax bracket. If an owner's personal tax rate is lower than 21 percent, pass-through taxation is cheaper. If the owner's personal rate is higher, a C corporation structure might save money. The choice between structures involves other factors too — liability protection, complexity, and state taxes — so many business owners consult a tax professional before deciding.

Limited liability companies (LLCs) and other structures can choose how they want to be taxed for federal purposes. An LLC can elect to be taxed as a C corporation, an S corporation, or a partnership, depending on what works best for the business.

How the 21 percent rate compares to historical rates

The 21 percent rate is significantly lower than the rate that existed for decades before 2018. From 1993 to 2017, the federal corporate tax rate was 35 percent — the highest it had been in modern times. Before 1993, rates were even higher in some periods.

The 2017 tax law that lowered the rate to 21 percent was intended to make U.S. corporations more competitive globally and to encourage business investment and hiring. The law also changed how depreciation and other deductions work, which affected how much tax corporations actually pay even beyond the rate change itself.

The 21 percent rate is not permanent. The law that set it is scheduled to expire after 2025 unless Congress extends it. If it expires, the rate would revert to a higher level, though the exact rate would depend on what Congress decides at that time.

What corporations report on their tax returns

Corporations report their income and calculate their federal tax using Form 1120, the U.S. Corporation Income Tax Return. This form requires detailed information: gross income, cost of goods sold, operating expenses, depreciation, interest, taxes paid, and other items that affect taxable income.

The form also includes schedules for specific types of income or deductions — capital gains, charitable contributions, net operating losses, and more. A corporation must file Form 1120 with the IRS by the 15th day of the fourth month after the end of its tax year (usually April 15 for a calendar-year corporation).

Large corporations and those with complex operations often work with tax professionals or accounting firms to prepare their returns and plan their tax strategy. Smaller corporations may handle it in-house or use tax software, though the complexity of the rules makes professional help common.

Frequently Asked Questions

Do all businesses pay the 21 percent corporate tax rate?

No. Only C corporations pay the 21 percent federal rate. Sole proprietorships, partnerships, S corporations, and LLCs taxed as pass-throughs do not pay corporate income tax. Instead, business income flows to the owners' personal returns and is taxed at individual rates.

What happens if a corporation has a loss instead of a profit?

A corporation that loses money in a year owes no federal income tax on that loss. It can carry the loss backward or forward to offset profits in other years, reducing taxes owed in those years. The rules for how far back and forward losses can be carried changed under the 2017 tax law.

Is the 21 percent rate the same for all states?

No. The 21 percent is the federal rate only. Each state sets its own corporate income tax rate, ranging from zero to over 12 percent. Some cities and counties add local corporate taxes as well, so total tax varies significantly by location.

Can a corporation reduce its taxable income below what it actually earned?

Yes, through legal deductions and depreciation. A corporation subtracts all ordinary business expenses — salaries, rent, equipment, interest on loans, and depreciation — before calculating taxable income. The IRS has specific rules about what counts as deductible, and corporations must document these expenses.

Will the 21 percent rate change in the future?

Possibly. The 2017 tax law that set the rate to 21 percent is scheduled to expire after 2025. Congress would need to extend it to keep the rate at 21 percent. If it expires, the rate would change, but what it would become depends on future legislative action.