Do corporations pay less in taxes than individuals? For the largest and most profitable companies, yes, and by a wide margin. A Government Accountability Office study found that profitable large corporations paid an average effective federal rate of about 9 percent after the 2017 tax overhaul, well below what most working Americans pay on their wages once income and payroll taxes are combined.1Government Accountability Office. Corporate Income Tax: Effective Rates Before and After 2017 Law Change The full answer is more complicated, because the tax code treats corporate profits, pass-through business income, wages, and dividends under entirely different rules, and some of those rules cut the other way.
The Starting Point: Statutory Rates
Every C-corporation pays a flat 21 percent on its taxable income, whether it earns $50,000 or $5 billion.2Office of the Law Revision Counsel. 26 U.S.C. 11 – Tax Imposed That flat rate replaced a graduated system that had peaked at 35 percent, and it is permanent.
Individuals face a progressive system with seven brackets ranging from 10 to 37 percent. For 2026, the top 37 percent rate begins above $640,600 for single filers and $768,700 for married couples filing jointly.3Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026, Including Amendments From the One, Big, Beautiful Bill Only income within each bracket is taxed at that bracket’s rate, so an individual earning $10 million ends up with a blended rate in the mid-30s. A corporation earning the same $10 million pays 21 percent on all of it. On paper, the corporation already wins.
Why Effective Rates Fall Even Further
The 21 percent figure is a ceiling most corporations never reach. The GAO’s 9 percent average for large profitable companies reflects several mechanisms baked into the code.
Business Expense Deductions
The code lets businesses subtract wages, rent, insurance, supplies, travel, and virtually any expense that is ordinary and necessary before calculating tax.4Office of the Law Revision Counsel. 26 USC 162 – Trade or Business Expenses A company with $10 million in revenue and $7 million in operating costs pays tax only on the remaining $3 million. Employees have nothing comparable. The Tax Cuts and Jobs Act eliminated the deduction for unreimbursed employee business expenses, and the One Big Beautiful Bill made that elimination permanent.3Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026, Including Amendments From the One, Big, Beautiful Bill Most workers now rely on the standard deduction, which is $16,100 for single filers and $32,200 for joint filers in 2026.
Bonus Depreciation
When a company buys equipment, vehicles, or buildings, it can deduct the cost through depreciation.5Office of the Law Revision Counsel. 26 U.S.C. 167 – Depreciation For 2026, 100 percent bonus depreciation has been restored, so businesses can write off the full cost of qualifying assets in the year they are placed in service. In a year of major capital spending, this can wipe out most of a company’s taxable income.
The Research Credit
Companies that invest in developing new products can claim a credit worth 20 percent of qualified research expenses above a base amount.6Office of the Law Revision Counsel. 26 USC 41 – Credit for Increasing Research Activities Credits reduce tax dollar for dollar, not just taxable income. No comparable credit exists for ordinary workers.
Losses and International Structuring
A company that loses money in one year can carry those losses forward to offset future profits, capped at 80 percent of taxable income for losses generated after 2017.7Office of the Law Revision Counsel. 26 U.S.C. 172 – Net Operating Loss Deduction Multinationals also earn income through foreign subsidiaries taxed at a lower effective rate. Global Intangible Low-Taxed Income is taxed at roughly 13.125 percent for 2026 after the Section 250 deduction, a meaningful discount from the domestic 21 percent.8Office of the Law Revision Counsel. 26 U.S. Code 250 – Foreign-Derived Deduction Eligible Income
Where Corporations Actually Pay More: Double Taxation
The 21 percent rate is only the first layer for a C-corporation. When the company distributes profits as dividends, shareholders pay tax again on their personal returns. Qualified dividends are taxed at 0, 15, or 20 percent depending on income, provided the shareholder holds the stock at least 61 days in the 121-day window around the ex-dividend date.9Office of the Law Revision Counsel. 26 U.S.C. 1 – Tax Imposed – Section: 1(h)10Internal Revenue Service. Instructions for Form 1099-DIV High-income shareholders add a 3.8 percent net investment income tax once modified adjusted gross income exceeds $200,000 (single) or $250,000 (joint).11Internal Revenue Service. Topic No. 559, Net Investment Income Tax
Stack the layers together and a dollar of corporate profit taxed at 21 percent, then paid out as a qualified dividend taxed at 20 percent plus the 3.8 percent surtax, faces a combined effective rate of roughly 44.8 percent. That exceeds the top 37 percent individual rate on wages. A salaried employee pays tax only once.
The catch is that double taxation only hits distributed profits. A corporation that reinvests everything and pays no dividends defers the second layer indefinitely. Stock buybacks accomplish something similar by letting shareholders control the timing of gains, and the 1 percent excise tax on buybacks by publicly traded companies is far lower than dividend rates.12Federal Register. Excise Tax on Repurchase of Corporate Stock
Most Businesses Are Not C-Corporations
The corporate-versus-individual framing skips a structural fact: most American businesses never pay corporate tax at all. S-corporations, partnerships, sole proprietorships, and most LLCs are pass-through entities, meaning profits flow onto the owners’ personal returns and are taxed at individual rates.13Office of the Law Revision Counsel. 26 U.S.C. Subtitle A, Chapter 1, Subchapter S, Part I – In General An LLC with two members is treated as a partnership for federal tax purposes unless it elects otherwise.14Internal Revenue Service. LLC Filing as a Corporation or Partnership
Pass-through owners can deduct up to 20 percent of qualified business income under Section 199A before calculating personal tax, a provision the One Big Beautiful Bill made permanent. For 2026, the deduction phases out for single filers with taxable income above $201,750 and joint filers above $403,500, disappearing entirely at $276,750 and $553,500 respectively. Below those thresholds, a pass-through owner earning $200,000 in business income is effectively taxed on only $160,000. That can bring the effective rate close to, or below, the 21 percent corporate rate.
The Payroll Tax Wedge on Workers
Income tax is only part of what workers owe. Employees pay 6.2 percent for Social Security and 1.45 percent for Medicare, with the employer matching both.15Internal Revenue Service. Topic No. 751, Social Security and Medicare Withholding Rates The Social Security portion applies to the first $184,500 in wages for 2026.16Social Security Administration. 2026 Cost-of-Living Adjustment (COLA) Fact Sheet Medicare has no wage cap, and workers earning above $200,000 pay an additional 0.9 percent Medicare surtax with no employer match.
Self-employed individuals and pass-through owners pay both halves, a combined 15.3 percent on their earnings. A self-employed person earning $100,000 owes roughly $15,300 in payroll tax on top of income tax. Corporations pay no payroll tax on their profits; they pay only the employer share of FICA on wages distributed to employees. Retained profits and dividends bypass payroll taxes entirely. For middle-income workers, payroll tax often rivals or exceeds the federal income tax bill, which is why comparing statutory rates alone understates the individual burden.
The Corporate Alternative Minimum Tax
Congress responded to the effective-rate gap in 2022 with a Corporate Alternative Minimum Tax. The CAMT imposes a 15 percent minimum on the adjusted financial statement income of corporations averaging more than $1 billion in annual profits.17Internal Revenue Service. IRS Clarifies Rules for Corporate Alternative Minimum Tax Financial statement income is what the company reports to investors, which closes many of the book-tax gaps that pushed effective rates into the single digits.
The CAMT only tops up companies whose regular tax falls below 15 percent of financial statement income, and foreign tax credits and certain business credits can offset the CAMT liability. Even the floor, though, is lower than what a single filer starts paying once taxable income crosses roughly $50,000.
Who Actually Pays Less
The answer depends on which taxpayer you compare.
Large C-corporations with sophisticated tax departments, global operations, and access to every credit in the code routinely pay effective federal rates in the single digits or low teens. No individual worker can achieve that on the same amount of income. The statutory 21 percent rate is already lower than the 24, 32, 35, and 37 percent brackets that apply to higher earners, and the available business deductions are far broader than anything a salaried employee can claim.
The picture shifts for smaller businesses. Pass-through owners are taxed at individual rates, pay self-employment tax on both halves of FICA, and can face the net investment income tax on top. A small business owner using an S-corporation or partnership structure often pays more in total federal taxes than a C-corporation that reinvests its earnings, because the pass-through owner absorbs income tax, payroll tax, and potentially the surtax all on the same dollar of profit.
And the shift reverses again for corporate profits that make it all the way out to shareholders. Once dividend taxes and the net investment income surtax stack on top of the 21 percent corporate rate, the combined burden on distributed profits can approach 45 percent, higher than the top individual rate on wages. The corporate advantage is real, but it is concentrated at the top and it depends on keeping profits inside the company.