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Social Sci LibreTexts

16.5: Personal, Property, and Sales Taxes

[ "article:topic", "corporate income tax", "payroll tax", "Social Security", "authorname:boundless" ]
  • Page ID
    3537
  • Corporate and Payroll Taxes

    Many countries impose taxes on a company’s earnings along with aspects of doing business. Two examples of these are corporate and payroll taxes.

    learning objectives

    • Give examples of corporate and payroll taxes

    Corporate taxes

    Many countries impose a corporate tax, also called corporation tax or company tax, on the income or capital of some types of legal entities. A similar tax may be imposed at state or lower levels. The taxes may also be referred to as income tax or capital tax. Most countries tax all corporations doing business in the country on income from that country. Many countries tax all income of corporations organized in the country. Company income subject to taxation is often determined much like taxable income for individuals. Generally, the tax is imposed on net profits. In some jurisdictions, rules for taxing companies may differ significantly from rules for taxing individuals.

    Net taxable income for corporate tax is generally financial statement income. The rate of tax varies by jurisdiction; however, most companies provide or make public the effective tax rate on the income earned. The effective tax rate is the average corporate tax rate on the company’s income and this takes into consideration tax benefits included in a current tax year.

    Corporations are also subject to a variety of other taxes including: property tax, payroll tax, excise tax, customs tax and value-added tax along with other common taxes, generally in the same manner as other taxpayers. These, however, are rarely referred to as “corporate taxes”.

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    Corporations are subject to multiple taxes: Corporations, such as CBS, whose headquarters are pictured above, are subject to multiple forms of tax, from corporate income tax to payroll taxes.

    Other taxes: Payroll taxes

    Payroll taxes are taxes that employers are required to pay when they pay salaries to their staff. Payroll taxes generally fall into two categories: deductions from an employee’s wages, and taxes paid by the employer based on the employee’s wages.

    • Deductions from an employee’s wages are taxes that employers are required to withhold from employees’ wages, also known as withholding tax, pay-as-you-earn tax (PAYE), or pay-as-you-go tax (PAYG). These often cover advance payment of income tax, social security contributions, and various insurances, such as, unemployment and disability.
    • Taxes paid by an employer based on the employee’s wages are taxes that are paid from the employer’s own funds. They are directly related to employing a worker. These can consist of fixed charges, or be proportionally linked to an employee’s pay. The charges paid by the employer usually cover the employer’s funding of the social security system, and other insurance programs.

    In the United States, payroll taxes are assessed by the federal government, all fifty states, the District of Columbia, and numerous cities. These taxes are imposed on employers and employees and on various compensation bases and are collected and paid to the taxing jurisdiction by the employers. Most jurisdictions imposing payroll taxes require reporting quarterly and annually in most cases, and electronic reporting is generally required for all but small employers.

    Key Points

    • Two common taxes faced by companies are corporate tax and payroll tax.
    • Corporate taxes are taxes a corporation must pay, and are analogous to personal taxes. Company income subject to taxation is often determined much like taxable income for individuals.
    • Payroll taxes generally fall into two categories: deductions from an employee’s wages and taxes paid by the employer based on the employee’s wages.

    Key Terms

    • corporate tax: A tax levied on a corporation, especially on its profits; corporation tax
    • payroll tax: A tax levied when an employer pays its employees.
    • Social Security: A system whereby the state either through general or specific taxation provides various benefits to help ensure the wellbeing of its citizens.

     

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