The federal corporate tax rate is 21 percent

The federal corporate income tax rate is a flat 21 percent on profits earned by C corporations. This rate has been in place since January 2018, when the Tax Cuts and Jobs Act lowered it from 35 percent. The rate applies to the taxable income of corporations incorporated in the United States, regardless of where they earn their money.

This is the rate you will see on federal tax forms and IRS publications. It is not the only tax a corporation pays — states add their own corporate income taxes on top, and some cities do as well — but 21 percent is the federal floor.

Key Takeaways

  • The federal corporate tax rate is 21 percent on taxable income for C corporations, set by the Tax Cuts and Jobs Act in 2018.
  • State corporate income taxes range from zero in nine states to over 12 percent in others, so the total rate a company pays varies by location.
  • Pass-through entities like S corporations, partnerships, and sole proprietorships do not pay corporate tax; instead, owners report business income on their personal tax returns.
  • The 21 percent rate applies to domestic corporations and foreign corporations earning U.S. income, but deductions and credits can lower the actual amount owed.

How state taxes change the total rate

While the federal rate is 21 percent, most states layer on their own corporate income tax. Nine states — Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire — do not tax corporate income at all. The remaining states range from Iowa at 12.4 percent down to North Carolina at 2.5 percent.

A corporation in California, for example, faces the 21 percent federal rate plus California's 8.84 percent state rate, for a combined 29.84 percent. A corporation in Texas pays only the 21 percent federal rate because Texas has no corporate income tax. This difference matters significantly for where businesses choose to incorporate and where they locate operations.

Some cities and counties also impose local corporate taxes, though these are less common and usually smaller. You will need to check your specific state and locality to know the full picture.

Pass-through entities pay differently

Not all business structures pay the 21 percent corporate tax. Pass-through entities — which include S corporations, partnerships, limited liability companies (LLCs), and sole proprietorships — do not pay corporate income tax at the federal level. Instead, the business income passes through to the owners' personal tax returns, where it is taxed at individual income tax rates.

This structure can be advantageous or disadvantageous depending on the owner's personal tax bracket and the business's profitability. A business owner in a lower personal tax bracket might pay less total tax through a pass-through structure than through a C corporation. Conversely, an owner in a high bracket might benefit from the flat 21 percent corporate rate.

Deductions and credits reduce what corporations actually owe

The 21 percent rate applies to taxable income, not total revenue. Corporations deduct ordinary business expenses — salaries, rent, equipment, materials, interest on debt — before calculating taxable income. A company with $10 million in revenue but $8 million in expenses pays tax on only $2 million.

Beyond deductions, corporations can claim tax credits that reduce the amount owed dollar-for-dollar. Research and development credits, work opportunity credits, and energy-related credits are common examples. These credits can significantly lower the effective tax rate — the percentage of actual profit that goes to taxes — below the stated 21 percent.

The difference between the stated rate and what companies actually pay

The 21 percent federal rate is what the law says, but the effective tax rate — what a company actually pays as a percentage of profit — is often lower. This happens because of deductions, credits, and the timing of when income and expenses are recognized.

Large corporations with sophisticated tax planning, significant research spending, or substantial debt can have effective rates well below 21 percent. Smaller businesses with fewer deductions and credits often pay closer to the full rate. The IRS publishes data on effective rates by industry and company size, though these figures lag by a year or more.

International corporations and the global minimum tax

The United States taxes corporations on their worldwide income if they are incorporated here, and on their U.S. income if they are incorporated abroad. This created incentives for multinational corporations to shift profits to low-tax countries.

In 2023, the OECD and over 130 countries, including the United States, agreed to a global minimum tax of 15 percent on large multinational corporations. The U.S. implemented this through the Inflation Reduction Act. The rule means that even if a multinational company earns income in a country with a lower tax rate, it will owe additional tax to bring the total to at least 15 percent. This is separate from the 21 percent federal rate and applies only to very large corporations with substantial global income.

Frequently Asked Questions

Did the corporate tax rate change recently?

The most recent major change was in 2018, when the Tax Cuts and Jobs Act set the rate at 21 percent. Before that, it was 35 percent. There have been no changes to the 21 percent federal rate since then, though Congress has proposed changes from time to time.

Is the corporate tax rate the same for all types of businesses?

No. The 21 percent rate applies only to C corporations. S corporations, partnerships, LLCs, and sole proprietorships do not pay corporate tax; their owners pay tax on business income at individual rates instead. The structure you choose affects how much tax you owe.

Why do some companies pay much less than 21 percent in taxes?

Deductions for business expenses, tax credits, and the timing of income recognition all lower taxable income below total revenue. A company with high expenses or significant tax credits can have an effective rate much lower than 21 percent, even though that is the stated rate.

Does the 21 percent rate explore to foreign companies?

Foreign corporations pay the 21 percent federal rate only on income earned in the United States. Income earned outside the U.S. is not subject to U.S. corporate tax. U.S. corporations, by contrast, pay tax on worldwide income.