Small Business Tax Rates: Federal, State, Sales, and Payroll Taxes (US)

MyCarTracks_support · April 21, 2026, 11:37am

Small business tax rates are not one flat number. Your rate depends on the tax type, your entity, your taxable income, where you do business, whether you sell taxable goods or services, and whether you have employees. Start with the business structure first, because the IRS business structure rules treat sole proprietorships, partnerships, corporations, S corporations, and LLCs differently for filing and tax purposes: IRS business structures.

For 2026 federal planning, a C corporation starts with the corporate income tax system, while many sole proprietors, partnerships, S corporations, and LLC owners use owner-level individual tax brackets. Individual marginal rates run from 10% to 37% for 2026, and corporations generally figure federal income tax by multiplying taxable income by 21%: IRS 2026 tax inflation adjustments and IRS Publication 542.

Quick answer

For US small business tax rates, identify the tax before applying a percentage:

Federal income tax applies to taxable income after allowed deductions and credits; pass-through owners often use individual brackets, while C corporations generally start with the 21% federal corporate rate under IRS Publication 542.
State income tax can apply at the entity level, owner level, or both, and state departments publish their own rates and local add-ons.
Sales and use tax applies to taxable sales or taxable purchases in the relevant state or locality, not to profit.
Payroll tax applies once the business has employees, with 2026 Social Security and Medicare rates listed in IRS Publication 15.
Self-employment tax is separate from income tax; the general Social Security and Medicare rate is 15.3%, with wage-base and Additional Medicare Tax rules: IRS self-employment tax.

How small business tax rates change at the federal level

Federal income tax starts with taxable income, not gross sales. Taxable income is revenue reduced by allowed business expenses, deductions, credits, and other adjustments that fit the business and tax year. A business with the same revenue can owe a different amount depending on whether income stays inside a C corporation or passes through to owners.

C corporations use the corporate rate

A C corporation is a separate federal taxpayer. For many small C corporations, the headline federal income tax calculation starts with the 21% corporate rate described in IRS Publication 542. That rate does not answer every owner question by itself. Wages, dividends, reasonable compensation, state corporate tax, payroll, retained earnings, and shareholder-level tax can all change the full result.

Pass-through businesses use owner-level rates

Sole proprietorships, partnerships, S corporations, and many LLCs are commonly called pass-through businesses because income and losses generally flow to the owners instead of being taxed as a separate C corporation. LLC tax treatment depends on elections and classification, so confirm the entity type before applying owner-level rates: IRS business structures.

For tax year 2026, the federal individual brackets for single filers are 10% up to $12,400, 12% over $12,400, 22% over $50,400, 24% over $105,700, 32% over $201,775, 35% over $256,225, and 37% over $640,600; the married filing jointly thresholds are higher and are published in the same IRS adjustment release: IRS 2026 tax inflation adjustments.

That does not mean every dollar of business profit is taxed at the top bracket. Progressive brackets apply in layers, and the owner return may also include wages, spouse income, investment income, deductions, credits, and estimated payments. If you are comparing entities, compare the full tax system rather than only the first federal rate you see.

State income taxes: corporate, owner, and local layers

State tax can follow the federal entity treatment, but it does not have to stop there. A state may tax C corporations, pass-through owners, local business activity, franchise bases, gross receipts, or a special pass-through entity election. If you operate in more than one state, have employees in another state, keep inventory elsewhere, or sell into multiple jurisdictions, use the official state tax department before relying on a static rate table.

State corporate tax examples

These examples show why a business should verify the exact state rule before estimating. They are not a complete state-by-state table.

State	Official rate starting point
California	Corporations other than banks and financial corporations use an 8.84% state rate as the official starting point: California business tax rates.
Florida	The corporate income/franchise tax rate is 5.5% for taxable years beginning on or after January 1, 2022, with a $50,000 exemption in the state corporate tax guidance: Florida tax and interest rates and Florida corporate income tax.
New York	New York Article 9-A rates include 6.5% for most general business taxpayers and 7.25% for general business taxpayers with a business income base over $5 million, with separate minimum and MTA surcharge rules: New York Article 9-A definitions.
Pennsylvania	The corporate net income tax rate is 7.49% for tax years beginning January 1, 2026 through December 31, 2026: Pennsylvania corporation tax rates.
Georgia	Georgia corporate income tax is 5.19% of Georgia taxable net income: Georgia corporate income and net worth tax.

State tax for pass-through owners

For pass-through businesses, many states tax the owner through the personal income tax return, while some also impose entity-level minimum taxes, franchise taxes, gross receipts taxes, or elective pass-through entity taxes.

California, for example, publishes an elective pass-through entity tax program for qualifying partnerships and S corporations for taxable years beginning on or after January 1, 2021 and before January 1, 2026: California pass-through entity elective tax. Pennsylvania taxes personal income at 3.07%, including net profits from a business, profession, or farm: Pennsylvania personal income tax.

Local taxes can also matter. A city, county, transit district, or local business license office may add a separate filing or payment even when the state rate looks simple.

Sales and use tax: collect, report, and keep it separate

Sales tax is usually charged to the customer on taxable sales, collected by the business, and remitted to the state or local tax agency. Use tax is the companion tax that can apply when taxable goods or services are bought for use in a state and the seller did not collect the right tax. The exact rules depend on product, service, customer location, marketplace rules, exemptions, and local rates.

Base state rates are only a starting point. Local rates, district taxes, marketplace facilitator rules, and product exemptions can change what you collect.

State	Official sales and use tax starting point
California	The statewide rate is 7.25%, with district taxes added in many areas: California sales and use tax rates.
Texas	The state sales and use tax rate is 6.25%, and local jurisdictions may add up to 2% for a maximum combined 8.25%: Texas sales and use tax.
New York	The state sales tax rate is 4%, with local rates and an additional Metropolitan Commuter Transportation District rate where applicable: New York sales and use tax expenditure data.
Pennsylvania	The state sales tax rate is 6%, with 1% added in Allegheny County and 2% added in Philadelphia: Pennsylvania sales, use, and hotel occupancy tax.
Illinois	General merchandise use tax is 6.25%, with separate rates for qualifying food, drugs, and medical appliances and local sales tax rules: Illinois sales and use tax definitions.
Ohio	Ohio sales and use tax rates belong in the state rate lookup and current tax rate resources before filing: Ohio sales and use tax.

Do not treat collected sales tax as operating profit. Keep taxable sales, exempt sales, resale certificates, marketplace sales, use-tax purchases, filing frequency, return confirmations, and payment proof in the same tax-year folder. For monthly records, pair this article with How to Keep Track of Business Expenses (US).

Payroll tax rates when you have employees

Payroll adds a separate compliance system. Once you have employees, you may need federal income tax withholding, Social Security and Medicare tax, federal unemployment tax, state unemployment insurance, state withholding, local payroll taxes, Forms 941, Forms W-2, deposits, and payroll records.

Social Security and Medicare

For 2026, Social Security tax is 6.2% for the employer and 6.2% for the employee, up to a $184,500 wage base. Medicare tax is 1.45% for the employer and 1.45% for the employee, with no wage base limit. Employers must also withhold 0.9% Additional Medicare Tax from wages over $200,000 in a calendar year: IRS Publication 15.

That is why FICA is often described as 15.3% in total: 12.4% Social Security plus 2.9% Medicare, split between employer and employee for wage payroll. Self-employed people handle the Social Security and Medicare family through Schedule SE instead of employer withholding, with the same general 15.3% Social Security and Medicare rate before wage-base and Additional Medicare Tax rules: IRS self-employment tax.

Federal and state unemployment tax

Federal unemployment tax is usually an employer cost. The standard FUTA rate is 6.0% on the first $7,000 of wages subject to FUTA, and the usual state unemployment credit can reduce the net federal rate to 0.6% when the employer qualifies: IRS FUTA credit reduction.

State unemployment tax is separate. Wage bases, rates, new-employer rates, experience ratings, and employee contributions vary by state. Check the state workforce or revenue agency for the state where the employee is covered, especially after hiring in a new state.

A simple way to estimate the total

Assume a Pennsylvania business has $75,000 of taxable income after supported business expenses and deductions. If it is a C corporation, the first federal calculation is 21% of $75,000, or $15,750, under IRS Publication 542. The Pennsylvania corporate net income tax rate for tax years beginning in 2026 is 7.49%, or $5,617.50 on $75,000, under the Pennsylvania corporation tax rate schedule. Before owner-level wages or distributions, that is $21,367.50 of federal and state corporate income tax in this simplified example.

If the same $75,000 belongs to a sole proprietor, the business profit generally feeds the owner’s federal and Pennsylvania individual return instead of a separate corporate return. For 2026, single-filer federal brackets start at 10%, 12%, and 22% before higher layers depending on taxable income, while Pennsylvania’s personal income tax rate is 3.07%: IRS 2026 tax inflation adjustments and Pennsylvania personal income tax rates.

This example is intentionally simplified. It does not include the standard deduction, self-employment tax, QBI deduction, local tax, payroll, credits, retirement contributions, health insurance, or owner-specific facts. Use it to see the workflow: identify the entity, identify the tax base, apply the correct federal and state rates, then layer in deductions, credits, payroll, and payments.

Lower the taxable base before chasing a lower rate

A lower tax bill often comes from better records, not from guessing at a lower percentage. Supported business expenses can reduce taxable profit, and common categories include rent, wages, supplies, professional fees, advertising, software, business mileage, parking, tolls, office costs, startup costs, and depreciation where allowed. For a deeper expense workflow, read Self-Employed Tax Deductions and IRS Receipt Requirements for Self-Employed People (US).

Some pass-through owners may also review the qualified business income deduction. IRS Form 8995 is used to figure the simplified QBI deduction, and the 2025 instructions describe a deduction of up to 20% of qualified business income for eligible taxpayers, subject to taxable-income, business-type, and other limits: About IRS Form 8995 and Instructions for Form 8995.

If vehicle use is part of the business, do not wait until tax season to reconstruct trips. The 2026 IRS business mileage rate is covered in Current IRS Mileage Rates for 2026, and the proof requirements are covered in IRS Mileage Log Requirements.

Records that make tax-rate planning work

Keep records by tax type:

Income tax: gross receipts, invoices, bank deposits, expense records, fixed-asset records, business structure documents, owner payments, estimated-tax confirmations, and filed returns.
Sales and use tax: taxable sales, exempt sales, resale certificates, marketplace facilitator reports, use-tax purchases, returns, and payment confirmations.
Payroll tax: employee setup records, wage reports, deposits, Forms 941, Forms W-2, unemployment filings, benefits records, and worker-classification support.
Vehicle and mileage: trip date, destination or route, business purpose, miles, vehicle, parking, tolls, fuel or charging, repairs, and total vehicle use where needed.

If your business uses vehicles, MyCarTracks automatic mileage tracking can capture trips and export reports before the tax calculation starts. For teams that need driver, vehicle, and route records available to managers or payroll, the MyCarTracks features overview gives broader product context, and the MyCarTracks homepage is the brand-level overview.

FAQ

What is the IRS small business tax rate?

There is no single IRS small business tax rate. A C corporation generally starts with the 21% federal corporate income tax rate in IRS Publication 542. Pass-through owners usually apply individual federal tax brackets to owner-level taxable income, and the IRS 2026 brackets run from 10% to 37% depending on filing status and taxable income: IRS 2026 tax inflation adjustments.

What counts as taxable income for a small business?

Taxable business income starts with revenue and then subtracts allowed expenses, deductions, credits, and adjustments for the business and tax year. A sole proprietor often starts that process on Schedule C, while a corporation files its own corporate return. Self-employed individuals also need to plan annual filing and estimated-tax payments during the year: IRS self-employed individuals tax center.

How can a small business legally reduce taxes?

Use complete records to claim allowed business expenses, compare the right vehicle expense method, review entity structure with a professional, keep estimated-tax payments current, and check whether deductions such as QBI apply. Start with How to Claim Self-Employed Taxes, Quarterly Tax Payments, and the official QBI form page: About IRS Form 8995.

Is sales tax part of my income tax rate?

No. Sales tax is a transaction tax collected or reported under state and local rules. It is not the same thing as federal income tax, self-employment tax, or payroll tax. For example, Texas has a 6.25% state sales and use tax plus possible local tax up to a maximum combined 8.25%: Texas sales and use tax.

Do I owe payroll tax if I am self-employed with no employees?

You usually do not run employee payroll for yourself as a sole proprietor with no employees, but you may owe self-employment tax on net earnings. The general Social Security and Medicare self-employment tax rate is 15.3%, and Schedule SE is the federal schedule used for the calculation: IRS self-employment tax.