Taxation in the United States is a complex and multifaceted topic relevant both for existing American businesses and for individuals and entrepreneurs considering entering the US market. The US tax system is distinguished by its structure and multi-level nature: companies must account for federal, state, and local taxes while understanding the nuances of each level. Depending on the company type, business scale, and state of registration, tax burden and obligations can variate significantly.
In this article, we will examine the key features of US taxation, including main tax requirements, types and levels of taxes, as well as taxation specifics for resident and non-resident individuals, which will help effectively plan expenses and avoid tax risks.
Levels of US Company Taxation
The US corporate taxation system is one of the most complex and multi-tiered in the world. Taxes are paid at three levels: federal, regional (state), and local, with each state and municipality able to set their own rates and requirements. This complicates the taxation structure for companies but also provides opportunities for tax planning. Let's examine the main types of taxation, features, and obligations that American companies face.
Federal Level Taxation
At the federal level, there are various types of taxes applied to companies depending on their structure and chosen tax regime.
Key types of taxation include:
Pass-through Taxation: In this case, company income taxes are paid not by the company itself but by its founders. This taxation method applies to all LLC-type companies (unless they elect corporate taxation) and S-Corps, which helps avoid double taxation. Founders are subject to individual income tax rates ranging from 10% to 37% depending on annual income and family status. For example, for a single person, the tax rates in 2025 are as follows:
- 10% - up to $11,925
- 12% - from $11,926 to $48,475
- 22% - from $48,476 to $103,350
- 24% - from $103,351 to $197,300
- 32% - from $197,301 to $250,525
- 35% - from $250,526 to $626,350
- 37% - $626,351 and above
It's important to note that the taxable base is calculated based on taxable income, not necessarily the company's actual profit, and various deductions and exemptions are possible. In this case, state taxes do not apply.
The next type of taxation is corporate taxation (C-Corps and LLCs that elect corporate taxation): Companies operating under corporate taxation pay corporate income tax at a fixed rate of 21% at the federal level, as well as state and local taxes.
State and Local Taxation Levels
At the state level, companies that have chosen corporate taxation face additional tax obligations that vary significantly.
State Corporate Income Tax
Each state sets its own corporate income tax rate for companies doing business in its territory. For example, Wyoming does not levy corporate income tax, while Florida's rate is 5.5%, and Delaware's is 8.7% for companies doing business in the state. These rates can significantly impact the tax burden and become an important factor for companies when choosing a state for registration or business operations.
Let's examine the main features of state-level taxation:
High Tax Rates. Four states set corporate income tax rates at 9% or higher:
- Minnesota - 9.8%
- Illinois - 9.5%
- Alaska - up to 9.4%
- New Jersey - maximum rate 11.5%, highest in the US
Low Tax Rates. Twelve states maintain corporate income tax rates at 5% or lower:
- North Carolina - lowest rate in the country, 2.25%
- Missouri and Oklahoma - 4% each
- North Dakota - up to 4.31%
- Other states with rates of 5% and lower include Colorado (4.4%), Utah (4.55%), Arkansas (4.3%), Arizona and Indiana (4.9%), as well as Kentucky, Mississippi, and South Carolina (5%)
Alternative Gross Receipts Taxes. Instead of or in addition to corporate income tax, some states levy taxes on gross receipts, which can have a stronger impact on companies:
- Nevada, Ohio, Texas, and Washington levy gross receipts taxes instead of income tax
- Delaware, Oregon, and Tennessee apply gross receipts taxes alongside corporate tax
States Without Corporate Income Tax. South Dakota and Wyoming are the only states where companies are exempt from both corporate tax and gross receipts tax. This makes them attractive for companies seeking to reduce their tax burden.
Below is an infographic of all state corporate income taxes in 2025.
The differences in tax rates between states allow companies to optimize their tax burden by choosing states with more favorable conditions.
Sales Tax
In the US, sales taxation includes state and local taxes, with 45 states levying such taxes at the state level. In 38 of these states, local sales taxes also apply, including Alaska, which has no unified state tax but allows municipalities to set their own rates. As a result, average combined rates can vary notably, and in some cases, states with moderate overall state sales tax rates end up with high total rates when local taxes are included.
Top States by Sales Tax
Highest Average Combined Sales Tax Rates:
- Louisiana - 9.56%
- Tennessee - 9.55%
- Arkansas - 9.45%
- Washington - 9.38%
- Alabama - 9.29%
Lowest Average Combined Rates:
- Alaska - 1.82% (local taxes only)
- Hawaii - 4.5%
- Wyoming - 5.44%
- Maine - 5.5%
- Wisconsin - 5.7%
Five states - Alaska, Delaware, Montana, New Hampshire, and Oregon - do not levy state sales taxes at all, which can be attractive for businesses and consumers. However, in Alaska's case, local taxes remain significant, though not reaching the high levels seen in other states with combined state and municipal taxes.
Below is an infographic for all Sales tax rates in 2025.
Taxation of Foreigners in the US
Individual taxes play a key role in increasing America's revenue. The US tax system also applies to foreign citizens who earn income in the US. Taxation of foreigners is divided into several categories depending on taxpayer status: resident, non-resident, or dual-status individual. Understanding the specifics for each of these categories allows foreign taxpayers to correctly fulfill their obligations to the US Internal Revenue Service.
- Foreign Residents
Foreign Residents are taxed in the US on the same basis as citizens. This means they must declare all their income, regardless of whether it was earned in the US or abroad. Foreign residents file Form 1040, reporting wages, interest, dividends, rental income, and any other types of income received during the tax year. Their tax returns can include benefits and deductions available to US citizens.
- Non-Resident Foreigners
Foreigners who do not have resident status are taxed in the US only on income from US sources. For non-residents, the main type of taxable income is FDAP income (Fixed, Determinable, Annual, or Periodic), such as interest, royalties, or rental payments. Non-residents file Form 1040-NR, reporting only US-source income. If this income is connected with a US trade or business, it's taxed at progressive rates; otherwise, a fixed withholding rate, often 30%, applies.
- Foreigners with dual status
Foreigners with dual status are individuals who were both resident and non-resident aliens during the same tax year. Such taxpayers must file two forms: Form 1040 for the residence period and Form 1040-NR for the non-residence period. Both forms are submitted as a single tax return, indicating dual-status. Depending on when their residency status changed, foreigners must correctly allocate their income and expenses for each period.
Important! Foreign taxpayers must have a Tax Identification Number (TIN) to file tax returns. This number is also necessary for requesting withholding exemptions or other benefits. Without this number, foreign taxpayers cannot properly report their income or take advantage of benefits provided by US tax treaties with other countries.
Individual Income Tax
Income taxes are the main revenue source for most states. Individual income tax is levied in 43 states and the District of Columbia. Of these, 41 states tax wage income, while New Hampshire and Washington make exceptions: the former taxes only dividend and interest income, while the latter taxes only capital gains. Seven states do not levy individual income tax at all, making them attractive for individuals and entrepreneurs looking to minimize their tax burden.
Below is an infographic of the 2024 personal income tax rate for all states.
Thus, taxation of US companies and individuals represents a complex and multi-level system that requires careful study and understanding. Each state establishes its unique tax rates and rules, making an individual approach to taxation necessary depending on location and business type.
Given the diversity of tax regimes, it's important to remember that proper understanding and application of tax regulations can significantly impact the financial condition of a company or individual taxpayer. If you have questions about taxation, whether corporate taxes, individual income taxes, or sales taxes, we recommend consulting with Campio Group. Our team of experts is ready to help you understand tax aspects and offer optimal solutions for your USA business.
