page_title: Corporate tax in the United States
section_title: Overview
hierarchical_section_title: Corporate tax in the United States / Overview
caption_attribution_description: English: United States Corporate Income Tax as Percent Share of GDP, 1946 - 2009.
context_page_description: Corporate tax is imposed in the United States at the federal, most state, and some local levels on the income of entities treated for tax purposes as corporations. Since January 1, 2018, the nominal federal corporate tax rate in the United States of America is a flat 21% due to the passage of the Tax Cuts and Jobs Act of 2017. State and local taxes and rules vary by jurisdiction, though many are based on federal concepts and definitions. Taxable income may differ from book income both as to timing of income and tax deductions and as to what is taxable. The corporate Alternative Minimum Tax was also eliminated by the 2017 reform, but some states have alternative taxes. Like individuals, corporations must file tax returns every year. They must make quarterly estimated tax payments. Groups of corporations controlled by the same owners may file a consolidated return.
  Some corporate transactions are not taxable. These include most formations and some types of mergers, acquisitions, and liquidations. Shareholders of a corporation are taxed on dividends distributed by the corporation.
context_section_description: Corporate income tax is imposed at the federal level on all entities treated as corporations (see Entity classification below), and by 47 states and the District of Columbia.  Certain localities also impose corporate income tax. Corporate income tax is imposed on all domestic corporations and on foreign corporations having income or activities within the jurisdiction. For federal purposes, an entity treated as a corporation and organized under the laws of any state is a domestic corporation.  For state purposes, entities organized in that state are treated as domestic, and entities organized outside that state are treated as foreign.
  Some types of corporations (S corporations, mutual funds, etc.) are not taxed at the corporate level, and their shareholders are taxed on the corporation's income as it is recognized. Corporations which are not S Corporations are known as C corporations.
  The US tax reform legislation enacted on 22 December 2017 (Public Law (P.L.) 115-97) changed the law of 'worldwide' to 'territorial' taxation in the US. The changed law includes the imposing of tax only on income derived within its borders, irrespective of the residence of the taxpayer. this system aimed at eliminating the need for complicated rules such as the controlled foreign corporation (CFC or Subpart F) rules and the passive foreign investment company (PFIC) rules that subject foreign earnings to current U.S. taxation in certain situations. Hence, P.L. (115-97) permanently reduced the 35% CIT rate on resident corporations to a flat 21% rate for tax years beginning after 31 December 2017. Corporate income tax is based on net taxable income as defined under federal or state law. Generally, taxable income for a corporation is gross income (business and possibly non-business receipts less cost of goods sold) less allowable tax deductions. Certain income, and some corporations, are subject to a tax exemption. Also, tax deductions for interest and certain other expenses paid to related parties are subject to limitations.
  Corporations may choose their tax year. Generally, a tax year must be 12 months or 52/53 weeks long. The tax year need not conform to the financial reporting year, and need not coincide with the calendar year, provided books are kept for the selected tax year.  Corporations may change their tax year, which may require Internal Revenue Service consent. Most state income taxes are determined on the same tax year as the federal tax year.
  Groups of companies are permitted to file single returns for the members of a controlled group or unitary group, known as consolidated returns, at the federal level, and are allowed or required to do so by certain states. The consolidated return reports the members' combined taxable incomes and computes a combined tax. Where related parties do not file a consolidated return in a jurisdiction, they are subject to transfer pricing rules.  Under these rules, tax authorities may adjust prices charged between related parties.
  Shareholders of corporations are taxed separately upon the distribution of corporate earnings and profits as a dividend.  Tax rates on dividends are at present lower than on ordinary income for both corporate and individual shareholders.  To ensure that shareholders pay tax on dividends, two withholding tax provisions may apply: withholding tax on foreign shareholders, and “backup withholding” on certain domestic shareholders.
  Corporations must file tax returns in all U.S. jurisdictions imposing an income tax. Such returns are a self-assessment of tax. Corporate income tax is payable in advance installments, or estimated payments, at the federal level and for many states.
  Corporations may be subject to withholding tax obligations upon making certain varieties of payments to others, including wages and distributions treated as dividends. These obligations are generally not the tax of the corporation, but the system may impose penalties on the corporation or its officers or employees for failing to withhold and pay over such taxes.
caption: Corporate income tax as a share of GDP, 1946–2009.
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