How Your Corporation Will Be Taxed

In this guide, you'll learn about the main types of tax in New York that apply to corporations, including sales, self-employment, corporate and federal taxes.

How your corporation is taxed will depend on whether it's an S Corp or a C Corp.

New York State Tax

There are three types of New York tax you must pay to the NY Department of Taxation and Finance: income, sales and franchise. Depending on how your business is set up, you may also need to pay use tax.

Important: All of these taxes apply whether you have a C Corp or an S Corp.

 

New York Income Tax

Anyone who takes earnings out of your corporation will need to pay NY income tax and will be taxed at the state's standard rates. Any employees will also need to pay state income tax. The current income tax brackets for New York range from 4 percent to 10.9 percent depending on where you live, what your adjusted gross income is and what your taxable income amount is. You can use the tax tables provided by the New York tax department to get an idea of how much you'll need to pay, but consult with your accountant or tax advisor to ensure you pay the proper amount.

 

New York Sales and Use Tax

These tax types are similar enough that they're often categorized together. It's still important to understand the differences between them.

New York Sales Tax

If you sell physical products (such as electronics, books, cars, furniture, appliances, raw materials, etc.) or certain services, you may need to collect NY sales tax at the point of purchase. You'll remit the taxes you collect to the NY Tax Department.

Most states, including New York, don't levy sales tax on goods considered to be necessities, such as gas, clothing, medication and some grocery items. The state's tax code, in Article 28, Part 3, § 1115, contains an extensive list of items exempt from New York sales tax.

The NYS sales tax rate is 4 percent statewide. Local taxing jurisdictions (cities, counties and school districts) may impose additional sales tax at varying rates.

Use our sales tax calculator to get an idea of what you'll need to pay, but always check with your accountant and the New York Tax Department to find out whether your business is required to collect sales tax and ensure you remain in compliance.

NY Use Tax

If you purchase physical products outside the state for use in New York from a seller who doesn't charge New York sales tax, you may need to pay use tax. You may also hear this referred to as the New York sales and use tax.

For example, if you buy furniture for your corporation from a company in a state that either doesn't have a sales tax or has a sales tax that is lower than the NY sales tax, you'll be responsible for paying the NY use tax.

The current New York use tax rate is 4 percent, and local municipalities may add their own use tax in addition to the state's rate. All New York sales and use tax is paid directly to the NYS Department of Taxation and Finance.

 

NYS Corporation Tax

Some states — including New York — levy a tax on certain businesses for the right to exist as a legal entity and do business in the state. This is usually called a franchise tax, transaction tax or privilege tax. In New York, it's the Corporate Franchise Tax, most often simply referred to as the Corporate Tax.

This tax applies to all corporations. General business corporations fall under the Article 9-A franchise tax.

How much you pay will depend on the type of business entity you have, the amount of revenue your business generates and a few other factors. Also, if your revenue is below a certain threshold, you could owe as little as $25 in franchise tax.

You can use the state's franchise tax resources to determine the rate that will apply to your business.

Talk to your accountant or tax preparer, or contact the NY Tax Department to determine whether you're required to pay the franchise tax and to ensure you're paying the correct amount.

Federal Taxes for Corporations

Federal taxes can be complicated, so speak to your accountant or professional tax preparer to ensure that your New York corporation is paying the correct amount, and that you're paying the correct individual amount.

Federal Self-Employment Tax

Whether and how you pay this tax depends on whether you have a C Corp or an S Corp.

Federal Taxes for C Corps

All shareholders who earn wages or a salary from a C Corporation must pay self-employment tax. This tax is administered by the Federal Insurance Contributions Act (FICA) and covers Social Security, Medicare and other benefits. The current self-employment tax rate is 15.3 percent.

You’ll be able to deduct some of your business expenses from your income when calculating how much self-employment tax you owe.

Here are some examples of how much self-employment tax you may need to pay, depending on your earnings:

  • On a salary of $30,000, you would pay self-employment tax of $4,590.
  • On a salary of $50,000, you would pay self-employment tax of $7,650.
  • On a salary of $70,000, you would pay self-employment tax of $10,710.
  • On a salary of $90,000, you would pay self-employment tax of $13,770.

Federal Taxes for S Corps

The Internal Revenue Service may allow your business to be treated as an S Corporation for tax filing purposes, provided it meets certain requirements. This can help you reduce the amount of self-employment tax you pay by allowing you to declare some of your income as salary (on which you'll pay self-employment tax) and other income as distributions (which are not subject to self-employment tax).

Speak to your accountant or professional tax preparer for more information on reducing your tax burden through an S Corporation tax election.

Treating your business as an S Corp can help you save money.

We can file your Form 2553 with the IRS on your behalf.

Federal Income Tax

You must pay regular federal income tax on any wages or salary your corporation pays you, regardless of its type. The amount of income tax you pay depends on your earnings, current income tax bracket, deductions and filing status.

Speak to your accountant or tax professional for more information.

Taxes Specific to C Corporations

Regardless of the state where your corporation is based, corporate taxes can get pretty complicated. We provide some basic information here, but we strongly encourage you to consult with a tax professional to ensure your corporation pays the right taxes in the right amounts to help you avoid penalties, fines and, worst of all, tax audits.

Corporate Tax

Unlike a limited liability company or an S Corporation, a C Corporation is required to file a corporate tax return and pay taxes on any profits.

When those profits are paid to shareholders as dividends, they will also be subject to taxation on the shareholders' personal tax returns.

This is often referred to as “double taxation,” and is one reason many business owners prefer to file their taxes as S Corporations.

Note: It is possible for a C Corp to file taxes as an S Corp. Consult with your accountant or professional tax advisor for more information.

Stock Dividends

A C Corporation may pay shareholders dividends as a share of the profits of the company. The value of dividends to which each shareholder is entitled depends on how many shares they own.

Dividends distributed to shareholders are taxed twice — first at the corporate level as profit (on the corporation’s Form 1120, the U.S. Corporation Income Tax Return) and again at the individual level as stock dividends (on the shareholder's Form 1040, the U.S. Individual Income Tax Return).

Taxes Specific to S Corporations

You must pay federal income tax on both your salary and any distributions you take from the business.

Need someone to file your corporate taxes?

Incfile provides a complete Business Tax Filing service.

Employee and Employer Taxes

If you pay employees, there are some slightly different tax implications. Speak to your accountant to get clear guidance for your unique situation.

Employer Payroll Tax Withholding

All employers are required to withhold federal taxes from their employees’ wages. You’ll withhold 7.65 percent of their taxable wages, and your employees will also be responsible for 7.65 percent, adding up to the current federal tax rate of 15.3 percent.

Speak to your accountant for more information.

Employees May Need to File Tax Returns

Regardless of whether you withhold federal and state income tax, your employees may need to file their own tax returns.

Employee Insurance and Other Requirements

You may also need to pay insurance for any employees, such as employee compensation insurance or unemployment tax.

Other Taxes and Duties

Depending on your industry, you may be liable for certain other taxes and duties. For example, if you sell gasoline, you may need to pay a tax on any fuel you sell. Likewise, if you import or export goods, you may need to pay certain duties.

Speak to your accountant about any other taxes or duties you may need to withhold or pay.

 

Estimated Taxes

Most corporations must pay estimated taxes throughout the year — on a quarterly basis — depending on the amount of profit and income you expect to make. Per the IRS:

"Corporations must generally make estimated tax payments if they expect their estimated tax (income tax less credits) to be $500 or more."

The most common types of estimated tax are:

Federal income tax

Federal self-employment tax

C Corporation

If you expect to owe $500 or more in income tax, you must make four quarterly estimated tax payments to the IRS. You'll estimate your total tax on Form 1120-W, then pay 25 percent on each due date.

Important: This applies to you as the owner of the C Corporation, not the business itself. A C Corporation does not pay income tax.

S Corporation

It's a little less straightforward for an S Corp, which will pay estimated taxes by filing an IRS Form 1120-S, which is the income tax return form for S Corps.

Also, as the owner of an S Corp, you'll need to make estimated payments on self-employment tax.

Learn more on the IRS website, and speak to your accountant for more information. Or use Incfile's Business Tax Filing service.

We can help you navigate complex tax situations and avoid costly mistakes with our complete Business Tax Filing service

FAQs on New York Taxes

Is There a New York Sales Tax?

Yes. New York does have a sales tax, which may vary among cities and counties. Depending on how you run your business, you may also need to pay use tax. You can find more information above.

Is There a New York Income Tax?

Yes. The State of New York does have an income tax. You can find more information above.

Is There an NYS Franchise Tax?

Yes, but it's called a New York Corporation Tax. You'll find more information above.

Do I Need to Pay Estimated Taxes?

Yes. In most cases, you must pay estimated taxes to the federal government, whether you run a C Corp or an S Corp. You'll find more information above.

Launch
Your Business with Incfile

No Contracts. No Surprises. Only $0 + State Fee to Launch Your Business.

Launch your business!