How much you pay in business taxes depends first on your entity type. A C-corporation pays a flat 21% federal income tax on its profits. A sole proprietorship, partnership, S-corporation, or LLC taxed as any of those doesn’t pay federal tax at the business level at all; the profit flows to the owner’s personal return and is taxed at individual rates from 10% to 37%. On top of that, self-employed owners owe a 15.3% self-employment tax, and any business with employees owes payroll taxes on wages. Deductions, especially the 20% qualified business income deduction, can pull the effective rate down significantly.
What a C-Corporation Pays
A C-corporation pays federal income tax as its own entity, separate from its owners, at a flat 21% on all taxable income.1Office of the Law Revision Counsel. 26 U.S.C. 11 – Tax Imposed A corporation earning $100,000 in taxable income owes $21,000. One earning $10 million owes $2.1 million. The rate doesn’t change with size.
The catch is double taxation. After the corporation pays its 21%, any profit distributed to shareholders as dividends is taxed again on the shareholders’ personal returns. Qualified dividends are taxed at 0%, 15%, or 20% federally, depending on the shareholder’s income. That second layer is why many small businesses avoid the C-corp structure.
What Pass-Through Owners Pay
Sole proprietorships, partnerships, S-corporations, and most LLCs don’t pay federal income tax at the business level. Profit flows through to owners, who report it on their personal returns. For 2026, the individual brackets are:2Internal Revenue Service. Revenue Procedure 25-32 – 2026 Inflation Adjustments
- 10% on taxable income up to $12,400 single or $24,800 married filing jointly
- 12% on $12,401–$50,400 single or $24,801–$100,800 joint
- 22% on $50,401–$105,700 single or $100,801–$211,400 joint
- 24% on $105,701–$201,775 single or $211,401–$403,550 joint
- 32% on $201,776–$256,225 single or $403,551–$512,450 joint
- 35% on $256,226–$640,600 single or $512,451–$768,700 joint
- 37% above $640,600 single or $768,700 joint
These are marginal rates. Only the income inside each range is taxed at that band’s rate. A sole proprietor with $80,000 in taxable income pays 10% on the first $12,400, 12% on the next slice, and 22% only on the portion above $50,400.
How LLCs Fit In
An LLC has no federal tax category of its own. A single-member LLC is treated as a sole proprietorship by default; a multi-member LLC is treated as a partnership. Either can elect corporate tax treatment by filing Form 8832, or S-corporation treatment by filing Form 2553.3Internal Revenue Service. LLC Filing as a Corporation or Partnership The classification you choose sets which rates and rules apply.
The S-Corporation Salary Rule
An S-corporation lets owners split income between salary (which is subject to payroll taxes) and distributions (which are not). But an S-corporation shareholder who works in the business must pay themselves a reasonable salary before taking distributions.4Internal Revenue Service. S Corporation Compensation and Medical Insurance Issues If the IRS finds the salary unreasonably low, it can reclassify distributions as wages and assess back payroll taxes plus penalties. “Reasonable” generally means what someone in a comparable role at a comparable company would earn.
The 20% Qualified Business Income Deduction
Pass-through owners may qualify for a deduction that reduces business income by up to 20% before individual rates apply. Under Section 199A, the deduction equals the lesser of your combined qualified business income or 20% of your taxable income minus net capital gains.5Office of the Law Revision Counsel. 26 U.S.C. 199A – Qualified Business Income A sole proprietor in the 24% bracket who claims the full 20% deduction sees their effective federal rate on business income drop to roughly 19.2%.
The deduction phases out at higher incomes, especially for service-based businesses such as law firms, medical practices, and consulting firms. For 2026, single filers with taxable income above $201,750 begin losing the deduction for specified service trades, and it disappears entirely above $276,750. Joint filers see the phase-out start at $403,500 and end at $553,500.2Internal Revenue Service. Revenue Procedure 25-32 – 2026 Inflation Adjustments Non-service businesses face different limits tied to W-2 wages paid and qualified property value, but those rules rarely wipe out the deduction entirely.
Self-Employment Tax
If you run your business as a sole proprietor or partnership, you owe self-employment tax on top of income tax. This covers the Social Security and Medicare contributions a traditional employer would split with you. The combined rate is 15.3%: 12.4% for Social Security and 2.9% for Medicare.6Internal Revenue Service. Self-Employment Tax (Social Security and Medicare Taxes) The tax kicks in once your net self-employment earnings reach $400 for the year.
The Social Security portion only applies to earnings up to $184,500 in 2026.7Internal Revenue Service. Topic No. 751, Social Security and Medicare Withholding Rates Anything above that ceiling escapes the 12.4% Social Security piece. The 2.9% Medicare tax has no cap. Self-employed individuals earning above $200,000 single or $250,000 joint also owe an additional 0.9% Medicare surtax on income above those thresholds.8Internal Revenue Service. Questions and Answers for the Additional Medicare Tax
One offset: you can deduct half of your self-employment tax when calculating adjusted gross income. That reduces your income tax and can keep you under thresholds for other benefits. Self-employed owners who pay for their own health insurance can also deduct those premiums from adjusted gross income, provided the plan is established under the business and they aren’t eligible for coverage through a spouse’s employer.9Internal Revenue Service. Instructions for Form 7206
What You Pay If You Have Employees
Once you put someone on payroll, a new layer of tax appears. You pay 6.2% of each employee’s wages for Social Security and 1.45% for Medicare, matching what you withhold from their paycheck.10Internal Revenue Service. Publication 15 (2026), Employer’s Tax Guide Social Security applies to each employee’s wages up to $184,500 in 2026. Medicare has no wage cap.
You also owe Federal Unemployment Tax (FUTA) at 6.0% on the first $7,000 of wages paid to each employee per year. A credit of up to 5.4% applies when you pay state unemployment taxes on time, cutting the effective FUTA rate to 0.6%.11Internal Revenue Service. Publication 926 (2026), Household Employer’s Tax Guide That works out to a maximum of $42 per employee per year.
Deposit timing depends on payroll size. Employers who reported $50,000 or less in employment taxes during the lookback period deposit monthly. Above $50,000, deposits are semi-weekly. New businesses default to monthly. Any business that accumulates $100,000 or more in payroll taxes on a single day must deposit by the next business day.12Internal Revenue Service. Topic No. 757, Forms 941 and 944 – Deposit Requirements
State Taxes Are Separate
Everything above is federal. Most states impose their own income tax on businesses, with top rates from 0% to roughly 11.5%. A handful of states levy no corporate income tax at all, though several substitute a gross receipts tax. The median top state corporate rate is around 6.5%, which adds meaningfully to a C-corporation already paying 21% federally. Some states also charge a franchise tax for the privilege of operating there, and franchise taxes can apply even in a year the business loses money.
Estimated Payments and What Late Costs
Federal tax is pay-as-you-go. If you expect to owe $1,000 or more when you file, you generally have to make quarterly estimated payments covering both income tax and self-employment tax. For calendar-year taxpayers the due dates are April 15, June 15, September 15, and January 15 of the following year.13Internal Revenue Service. Estimated Tax – When Are Quarterly Estimated Tax Payments Due?
Underpay and the IRS charges interest, currently 7% annually.14Internal Revenue Service. Quarterly Interest Rates Two safe harbors avoid an underpayment penalty: pay at least 90% of the current year’s tax, or pay 100% of last year’s tax. If your prior-year adjusted gross income exceeded $150,000, the second safe harbor rises to 110%.15Internal Revenue Service. Underpayment of Estimated Tax by Individuals Penalty
The two penalties that matter most for what you ultimately pay are the ones for late filing and late payment. Failure to file costs 5% of the unpaid tax per month, capped at 25%.16Internal Revenue Service. Failure to File Penalty Failure to pay costs 0.5% per month, also capped at 25%.17Internal Revenue Service. Failure to Pay Penalty If you owe $10,000 and file two months late, you’ll owe roughly $900 in combined penalties. File on time and pay two months late, and the cost drops to about $100. If cash is tight at the deadline, file anyway.