Taxes In 2026, most U.S. small business owners continue to face an overall tax burden that typically falls between 20% and 30% of net income once federal, state, and local taxes are combined. The exact percentage varies widely based on income level, state of operation, and—most importantly—the legal structure of the business.
A major development shaping small business taxation in 2026 is the One Big Beautiful Bill Act (OBBBA). This legislation permanently extended and expanded several provisions from the 2017 Tax Cuts and Jobs Act, delivering long-term certainty and meaningful tax relief for many entrepreneurs, particularly those operating pass-through businesses.
Federal Taxes by Business Structure in 2026
There is no single “small business tax rate.” Instead, federal tax liability depends on how the business is legally organized.
Pass-Through Businesses
This category includes sole proprietorships, single- and multi-member LLCs, partnerships, and S corporations. These entities do not pay federal income tax at the business level. Instead, profits are reported on the owner’s personal tax return.
Key federal taxes for pass-through owners include:
- Ordinary Income Tax:
Business income is taxed at individual rates ranging from 10% to 37%, depending on total taxable income and filing status. - Self-Employment Tax:
Sole proprietors and active partners must pay 15.3% on net earnings, which covers:- 12.4% for Social Security
- 2.9% for Medicare
- Social Security Wage Base (2026):
The 12.4% Social Security portion applies only to the first $184,500 of earned income. Income above this threshold is not subject to Social Security tax, though the Medicare portion continues.
Note: S corporation owners can reduce self-employment taxes by paying themselves a reasonable salary (subject to payroll tax) and taking remaining profits as distributions, which are not subject to self-employment tax.
C Corporations
C corporations are taxed separately from their owners.
- Corporate Income Tax:
A flat 21% federal corporate tax rate applies to net profits. - Double Taxation:
When profits are distributed as dividends, shareholders also pay personal income tax on those dividends, increasing the effective tax burden.
This structure is often chosen by businesses planning to reinvest profits, seek venture capital, or go public.
Major Small Business Tax Changes in 2026 Under OBBBA
The One Big Beautiful Bill Act permanently extended several provisions that were previously scheduled to expire, providing stability for long-term tax planning.
Permanent Qualified Business Income (QBI) Deduction
- The 20% QBI deduction for pass-through businesses is now permanent.
- For 2026, the phase-out thresholds increased to:
- $201,775 for single filers
- $403,500 for married couples filing jointly
This expansion allows more small business owners—especially those in professional services—to benefit from the deduction.
New Minimum QBI Deduction
- A $400 minimum QBI deduction was introduced.
- Available to owners who:
- Materially participate in the business
- Earn at least $1,000 in qualified business income
This provision ensures meaningful relief even for lower-income or early-stage businesses.
Higher Standard Deduction
Many small business owners rely on the standard deduction rather than itemizing.
- Single filers: $16,100
- Married filing jointly: $32,200
The increased standard deduction helps offset taxable income, particularly for sole proprietors and freelancers.
Expanded SALT Deduction Cap
- The State and Local Tax (SALT) deduction cap has been temporarily raised from $10,000 to $40,400 for 2026.
- This change is especially beneficial for business owners in high-tax states such as California, New York, and New Jersey.
2026 Federal Income Tax Brackets
| Tax Rate | Single Filers | Married Filing Jointly |
|---|---|---|
| 10% | $0 – $12,400 | $0 – $24,800 |
| 12% | $12,401 – $50,400 | $24,801 – $100,800 |
| 22% | $50,401 – $105,700 | $100,801 – $211,400 |
| 24% | $105,701 – $201,775 | $211,401 – $403,550 |
| 32% | $201,776 – $256,225 | $403,551 – $512,450 |
| 35% | $256,226 – $640,600 | $512,451 – $768,700 |
| 37% | Over $640,600 | Over $768,700 |
Source: IRS inflation-adjusted revenue procedures for 2026.
Additional Tax Responsibilities for Small Businesses
Payroll and Employment Taxes
Businesses with employees must also account for employment-related taxes:
- Employer payroll tax:
Employers pay 7.65% of employee wages, matching the employee’s Social Security and Medicare contributions. - Federal and state unemployment taxes may also apply, depending on payroll size and location.
State and Local Taxes
State-level taxation varies significantly:
- Some states impose no corporate or personal income tax (e.g., South Dakota, Wyoming).
- Others levy corporate or pass-through taxes exceeding 11% (e.g., New Jersey).
- Many local governments impose additional business taxes or gross receipts taxes.
Sales Tax and Economic Nexus Rules
Small businesses selling products or taxable services across state lines must comply with economic nexus laws.
- Most states require sales tax collection once a business exceeds:
- $100,000 in sales, or
- 200 transactions annually in that state
Failure to comply can result in penalties, back taxes, and interest.
Bottom Line
In 2026, small business owners benefit from greater tax certainty and expanded deductions thanks to the One Big Beautiful Bill Act. While most still pay between 20% and 30% of net income in total taxes, strategic choices around business structure, compensation, deductions, and state compliance can significantly reduce the overall burden. Proper planning—and professional tax guidance—remains one of the most powerful tools for improving small business profitability.