Corporate taxes: A basic overview

Tax recipients

Corporations pay taxes to states and to the federal government. For example, if a company is incorporated in Delaware and operates in California, taxes will by paid the company to three recipients:

Payment calendar

Payroll and corporate income taxes are paid at different frequencies:

Payroll taxes

Whenever a corporation pays wages to an employee, they start with a “gross” amount and then figure two sets of taxes:

  1. Employee withholding: They “withhold” some of the wages based on the payroll taxes that are due by the employee. For example, if the corporation is paying a $5,000 wage to its employee and the state charges 10% personal income tax to employees, the net sum the employee will receive drops by 10% to $4,500. That 10% (in this case, $500) is deposited by the corporation to the state.
  2. Employer expenses: The corporation will also directly pay any employer-responsible taxes to the receiving party (state/federal). For example, if the corporation is paying a $5,000 wage to its employee and the state charges a 1% “unemployment insurance tax” to employers, the corporation will pay $50 to the state in addition to wages paid to the employee.

Corporate income taxes

At the end of the year, the corporation pays income taxes based on the profit it has earned. The tax required to be paid is figured in a multi-step process:

  1. Start with the revenue the corporation has made that year
  2. Subtract out applicable business costs from the year (“deductions”)
  3. Apply the relevant tax percentage on the remainder

Examples of forms and services

Here are a few examples of the services used in managing this process:

  1. State payroll taxes are deposited to California via the EDD system: https://edd.ca.gov/About_EDD/Employer_Services_Online.htm.
  2. Federal payroll taxes are deposited to the government via EFTPS: https://www.eftps.gov/eftps/
  3. State and federal income taxes are handled annually via two filings: (a) California Form 100: Booklet, (b) Federal Form 1120: Info.

--

--

Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store