Key Takeaways:

  • The US corporate tax rate changed in 2018 with the Tax Cuts and Jobs Act, reducing the rate to a flat 21%.
  • Individual tax brackets were also restructured, with new rates and thresholds effective through 2025.
  • State corporate taxes vary and are combined with the federal rate, influencing the effective tax burden.
  • Comparisons between US corporate tax rates and international rates highlight the competitiveness of the US system

The IRS corporate tax rate schedule is changing in 2018 with the passage of TCJA (Tax Cuts and Jobs Act), which includes numerous changes in tax rates, brackets, and thresholds. Significant changes in the individual tax code include the elimination of personal tax exemptions and the Pease limitation on itemized deductions as well as the expansion of the Child Tax Credit.

Most filers will see lower brackets, with a new top rate of 37 percent (reduced from 39.6 percent). Now, the 10 percent bracket applies to the first $10,000 for individuals and $19,000 for joint filers. Additional changes include the doubling of standard deductions, changes in mortgage interest, AMT, and other credits and deductions.

Changes in Individual Rates

Previously, individuals' income subject to tax included "ordinary income" and most interest and retirement income, which was calculated at increasing rates applicable to varying income ranges depending on the filing status. In 2017, the seven different rates were:

  • 10 percent
  • 15 percent
  • 25 percent
  • 28 percent
  • 33 percent
  • 35 percent
  • 39.6 percent

Beginning in 2018 and continuing through 2025, the percentage rates of those seven tax brackets will change to:

  • 10 percent
  • 12 percent
  • 22 percent
  • 24 percent
  • 32 percent
  • 35 percent
  • 37 percent

In actual dollar ranges, the new brackets for those filing as individuals are as follows:

2018 Income Tax Rate: Single Individual

If taxable income is: The tax is:
Not over $9,525 10 percent of taxable income
Over $9,525 but not over $38,700 $952.50 plus 12 percent of the excess over $9,525
Over $38,700 but not over $82,500 $4,453.50 plus 22 percent of the excess over $38,700
Over $82,500 but not over $157,500 $14,089.50 plus 24 percent of the excess over $82,500
Over $157,500 but not over $200,000 $32,089.50 plus 32 percent of the excess over $157,500
Over $200,000 but not over $500,000 $45,689.50 plus 35 percent of the excess over $200,000
Over $500,000 $150,689.50 plus 37 percent of the excess over $500,000

2018 Income Tax Rate: Married Filing Jointly and Surviving Spouse

If taxable income is: The tax is:
Not over $19,050 10 percent of taxable income
10 percent of taxable income $1,905 plus 12 percent of the excess over $19,050
Over $77,400 but not over $165,000 $8,907 plus 22 percent of the excess over $77,400
Over $165,000 but not over $315,000 $28,179 plus 24 percent of the excess over $165,000
Over $315,000 but not over $400,000 $64,179 plus 32 percent of the excess over $315,000
Over $400,000 but not over $600,000 $91,379 plus 35 percent of the excess over $400,000
Over $600,000 $161,379 plus 37 percent of the excess over $600,000

2018 Income Tax Rate: Married Filing Separate

If taxable income is: The tax is:
Not over $9,525 10 percent of taxable income
Over $9,525 but not over $38,700 $952.50 plus 12 percent of the excess over $9,525
Over $38,700 but not over $82,500 $4,453.50 plus 22 percent of the excess over $38,700
Over $82,500 but not over $157,500 $14,089.50 plus 24 percent of the excess over $82,500
Over $157,500 but not over $200,000 $32,089.50 plus 32 percent of the excess over $157,500
Over $200,000 but not over $300,000 $45,689.50 plus 35 percent of the excess over $200,000
Over $300,000 $80,689.50 plus 37 percent of the excess over $300,000

2018 Income Tax Rate: Head of Household

If taxable income is: The tax is:
Not over $13,600 10 percent of taxable income
Over $13,600 but not over $51,800 $1,360 plus 12 percent of the excess over $13,600
Over $51,800 but not over $82,500 $5,944 plus 22 percent of the excess over $51,800
Over $82,500 but not over $157,500 $12,698 plus 24 percent of the excess over $82,500
Over $157,500 but not over $200,000 $30,698 plus 32 percent of the excess over $157,500
Over $200,000 but not over $500,000 $44,298 plus 35 percent of the excess over $200,000
Over $500,000 $149,298 plus 37 percent of the excess over $500,000

State-Level Corporate Tax Rates

Corporate tax rates in the United States consist of federal and state-level components. While the federal corporate tax rate is a flat 21%, state corporate tax rates vary significantly. States like Wyoming and South Dakota do not impose corporate taxes, while others, like New Jersey and Iowa, have rates exceeding 9%. Combining state and federal rates, the effective corporate tax rate can reach over 25% in certain states.

International Comparisons

The US corporate tax rate is competitive globally, especially after the 2018 TCJA reforms. At 21%, the federal rate is below the OECD average corporate tax rate of approximately 23%. When including state taxes, the effective US rate aligns closely with international averages. Countries like Ireland attract businesses with a low 12.5% rate, while others, such as France, impose rates exceeding 25%.

Changes in Corporate Income Tax Rate

In 2017, C corporations were subject to the following tax rates:

  • 15 percent for taxable income up to $50,000
  • 25 percent for taxable income over $50,000 to $75,000
  • 34 percent for taxable income over $75,000 to $10,000,000
  • 35 percent for taxable income over $10,000,000

With the passing of the TCJA, the corporate tax rate has now become a flat 21 percent, starting in the 2018 tax year. The corporate alternative minimum tax has also been eliminated.

Impact of Corporate Tax Changes on Businesses

The flat corporate tax rate simplifies calculations and benefits large corporations by lowering their tax burden compared to the pre-TCJA structure. Small businesses benefit indirectly from economic growth spurred by corporate investment, although many still file taxes under individual rates. The elimination of the corporate Alternative Minimum Tax (AMT) has further streamlined compliance.

Tax Revenue Implications

The reduction in the corporate tax rate significantly impacted federal revenue, reducing collections by an estimated $135 billion annually. However, proponents argue that lower rates have incentivized investment, spurring economic growth and potentially offsetting revenue losses in the long term.

FAQ Section

  1. What is the current US corporate tax rate?
    • The federal corporate tax rate is a flat 21%. State-level taxes may increase the effective rate.
  2. How does the US corporate tax rate compare internationally?
    • The US rate is competitive, with a federal rate of 21%, below the OECD average of about 23%.
  3. Do all states impose corporate taxes?
    • No, states like Wyoming and South Dakota do not levy corporate taxes, while others impose rates exceeding 9%.
  4. How did the TCJA affect corporate taxes?
    • It introduced a flat federal rate of 21%, eliminated the corporate AMT, and adjusted deductions.
  5. What is the combined state and federal corporate tax rate?
    • Combined rates vary by state but can exceed 25% in states with higher corporate tax rates.

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