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.
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.
Bizee 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% on each due date. Please note that the IRS will no longer be updating Form 1120-W, so follow up with your accountant with any questions on estimated tax payments after 2023.
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 Bizee's Business Tax Filing service.
FAQs on New York Taxes
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.
Yes. The State of New York does have an income tax. You can find more information above.
Yes, but it's called a New York Corporation Tax. You'll find more information above.
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.
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