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How Your Corporation Will Be Taxed
In this guide, you'll learn about the main Georgia taxes 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.
Georgia Taxes for Corporations
There are three types of GA state tax you must pay to the GA Tax Center: income, sales and corporate income. 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.
Georgia State Income Tax
Anyone who takes earnings out of your corporation in Georgia will need to pay GA income tax and will be taxed at the state's standard rates. Any employees will also need to pay state income tax.
The Georgia income tax rate varies based on several factors. Per the Georgia Department of Revenue: "Georgia Individual Income Tax is based on the taxpayer's federal adjusted gross income, adjustments that are required by Georgia law, and the taxpayers filing requirements."
Consult with your accountant or tax advisor to ensure you pay the proper amount.
Georgia 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.
If you sell physical products (such as electronics, books, cars, furniture, appliances, raw materials, etc.) or certain services, you may need to collect GA sales tax at the point of purchase. You'll remit the taxes you collect to the GA Department of Revenue.
Most states, including Georgia, don't levy sales tax on goods considered to be necessities, such as gas, clothing, medication and some grocery items. The GA Department of Revenue provides an extensive list of exemptions.
The GA sales tax rate is 4 percent statewide. Local taxing jurisdictions (counties, with variations depending on the city contained within the county, specifically Atlanta) may also impose sales tax at a rate of up to 4.9 percent for a total maximum combined rate of 8.9 percent.
Use our sales tax calculator to get an idea of what you'll need to pay, but always check with your accountant and the GA Tax Center to find out whether your business is required to collect sales tax and ensure you remain in compliance.
If you purchase physical products outside the state for use in Georgia from a seller who doesn't charge GA sales tax, you may need to pay use tax. You may also hear this referred to as the GA 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 GA sales tax, you'll be responsible for paying the use tax.
Generally, the applicable local sales tax rate is the rate imposed in the county where the buyer receives the goods. A taxpayer’s use tax liability will be reduced by the taxes previously paid in another state.
For example: A contractor buys a bulldozer in another state and pays state sales tax but no local sales tax. The following week, the contractor transports the bulldozer into Georgia and performs a job in Hall County.
The contractor now owes GA sales and use tax on the purchase price of the bulldozer at a rate of 4 percent. His Georgia use tax liability will be reduced by the sales tax previously paid in the other state.
In addition, he owes Hall County use tax on the purchase price of the bulldozer at the Hall County sales tax rate.
The current use tax rate is 4 percent, and local municipalities may add their own use tax in addition to the state's rate. The GA sales and use tax is paid directly to the GA Tax Center.
Georgia Corporate Income Tax
Some states — including Georgia — 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 Georgia, it's the Corporate Income and Net Worth Tax, often simply referred to as the GA Corporate Income Tax, Corporate Tax or Net Worth Tax.
The Georgia corporate tax is a non-graduated percentage based on a corporation's federal taxable net income and as modified by Georgia statutory adjustments. Any corporations that own property or do business in Georgia, or receive income from Georgia sources, are subject to corporate income tax. The Georgia Corporate Tax rate is 5.75 percent of a corporation's taxable net income.
Talk to your accountant or tax preparer, or contact the Department of Revenue to determine whether you're required to pay the Net Worth 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 Georgia 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 $45,000, you would pay $6,885.
- On a salary of $65,000, you would pay $9,945.
- On a salary of $85,000, you would pay $13,005.
- On a salary of $105,000, you would pay $16,065.
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.
Treating Your Business as an S Corp Can Help You Save Money.
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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.
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.
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.
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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.
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
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.
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.
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FAQs on Corporate Georgia Taxes
Is There a GA Sales and Use Tax?
Yes. Georgia 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.
Is There a Georgia State Income Tax?
Yes. Georgia does have a state income tax. You can find more information above.
Is There a GA Franchise Tax?
Yes, but it's called a Corporate Income Tax, which all corporations must pay. You'll find more information above.
Do I Need to Pay Estimated Taxes?
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.