Corporation vs. Individual Tax Rate: What’s the Difference?

One is a flat tax rate and the other is a marginal tax rate

A business owner works on a laptop.

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When it comes to paying taxes, most businesses would prefer to pay less. As a business owner, you may feel you would benefit from paying the corporation tax rate rather than the individual tax rate. But corporations and other types of businesses are taxed in different ways, so there’s more to it than just picking which rate you want to pay.

Learn how tax rates of corporations and individuals compare, plus the difference in taxes paid by corporate businesses and other types of small businesses.

What’s the Difference Between Corporate Tax Rates and Personal Tax Rates?

Corporate Tax Rate Personal Tax Rate
Flat tax rate of 21% Seven marginal tax rates, from 10% to 37%, depending on your income
C corporation income tax is separate from the owner’s personal tax Pass-through entities pay the personal tax rate on the combined total of business and personal income
A C corporation is the only type of business entity that pays the corporate tax rate Owners of sole proprietorships, LLCs, partnerships, and S corporations are pass-through entities
Form 1120 is used for corporation taxes Owners who pay personal taxes use forms Schedule C or Schedule K-1

Tax Rate

Corporate income tax used to be calculated on a marginal rate structure, with higher taxes being paid on higher levels of corporate income. The 2017 change in the tax law created a flat corporate tax rate of 21%.

That same law also changed personal tax rates, which now range from 10% to 37%, depending on income. The lowest tax rate applies to single individuals with incomes of $10,275 or less and married couples filing jointly with incomes of $20,550 or less. The highest tax rate applies to single individuals with incomes over $539,900 and married couples filing jointly with income over $647,850. This is for tax year 2022. These income thresholds may change from tax year to tax year.


A marginal tax rate is an additional tax paid for every additional dollar earned as income. A 10% marginal tax rate, for example, would mean that 10 cents of every next $1 earned would be taken as tax. A 35% tax rate means 35 cents of every next $1 would be taxable.

Business Entities and Taxes

Corporations, sometimes called “C corporations,” are the only business entity that pays business taxes directly based on the taxable income of the business.

Sole proprietors, members (owners) of limited liability companies (LLCs), partners in partnerships, and owners of S corporations are taxed as pass-through entities. That means they report their business income on the owner’s individual income tax return, and they pay taxes based on the individual’s tax rate.

With a pass-through entity, the net income of the business is added to the owner’s other income, deductions, and credits to get to a total income level. The total taxable income then is taxed at the applicable tax rate. For example, if your taxable income, including your business income, is at the 37% level, that’s the tax rate used to calculate your income taxes for the year.

Tax Forms

Corporations use tax form 1120.

Sole proprietorships and single-member LLCs report business income using Schedule C. The taxable amount is “net profit or (loss).”

Owners of multiple-member LLCs (classified as a partnership unless it elects to be treated as a corporation), partners in partnerships, and owners of S corporations report using Schedule K-1.


There are two different versions of Schedule K-1. Schedule K-1 (Form 1065) is for owners of multiple-member LLCs and partners in partnerships. Schedule K-1 (Form 1120-S) is for S corporation owners.

Owners of corporations are shareholders and their income from the business is in the form of dividends. They report this dividend income on Form 1099-DIV.

Other Considerations Affecting Business and Personal Tax Rates

In addition to the income tax paid as a small business owner or by a corporation, there are other factors to consider in analyzing corporate versus personal taxes.

Double Taxation on Owners of Corporations

Owners of corporations are subject to double taxation on corporate income, meaning that they pay taxes twice on the same dollar of income. The corporation pays one tax on the corporate level and the individual owner(s) pays a second tax at the individual tax level on dividends distributed to the owner(s). If the corporation doesn’t pay dividends and reinvests or holds onto its after-tax earnings, the value of its stock will go up, and that leads to capital gains.


Dividend income is taxed at different rates, depending on the type and amount. Check with a tax professional about how taxes on dividends you receive affect your personal tax rate.

Self-Employment Taxes

Everyone who works in the U.S. must pay Social Security and Medicare taxes. Small business owners (not including corporate shareholders) must pay these taxes in the form of self-employment taxes. The tax rate is 15.3%. These taxes aren’t withheld from a paycheck, so they must be paid directly, based on the net income of the business, and they are included in the taxable income of the business owner. Most small business owners make quarterly estimated payments including both estimated income taxes and these self-employment taxes.


Claiming tax credits and deductions can lower your taxable income and your personal tax rate. The IRS has lists of tax credits available to individuals and businesses.

The Bottom Line

Looked at simply, corporations pay income tax separately from the tax situation of their owners, so it’s difficult to compare tax rates of corporations and individuals. There are many variables and each tax situation is unique. Spend some time with a licensed tax professional to consider all factors affecting how corporate and individual income tax rates affect the amount of taxes you pay as a small business owner.

Frequently Asked Questions (FAQs)

Is corporation tax more than income tax?

This depends on the individual business owner’s total taxable income. The corporate tax rate is a flat 21%, while personal income tax rates vary from 10% to 37%, depending on the person’s taxable income. But this comparison is oversimplified because there are other factors involved. For example, owners of corporations also have to pay taxes on dividends they receive, and owners of other types of small businesses must pay self-employment taxes on their company’s income.

Do you file business taxes and personal taxes together?

If your business is a corporation, you file business taxes based on the income of the business on Form 1120. Then you pay these taxes from the corporation’s accounts, and you file your business tax return separately from your personal tax return. If you are the owner of any other type of business, you calculate your taxable income for your business and report these taxes as part of your personal income tax form (Form 1040).

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The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
  1. IRS. “About Publication 542, Corporations.”

  2. IRS. "IRS Provides Tax Inflation Adjustments for Tax Year 2022."

  3. Tax Foundation. "Marginal Tax Rate."

  4. Tax Policy Center. “What Are Pass-Through Businesses?

  5. IRS. “Instructions for Form 1120.”

  6. IRS. “Instructions for Schedule C.”

  7. TurboTax. “What Is Schedule K-1 Tax Form?

  8. Tax Foundation. "Double Taxation."

  9. IRS. "Self-Employment Tax (Social Security and Medicare Taxes)."

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