Understanding the U.S. Tax System and Key Reforms in 2025

The United States operates a multifaceted tax framework, with authority distributed across federal, state, and local jurisdictions. Tax obligations for businesses depend on where they operate and earn income. The most significant federal tax overhaul in recent history was the Tax Cuts and Jobs Act (TCJA) under the Trump administration, implemented in 2018. It introduced major changes such as reducing the corporate income tax rate to a flat 21%, adjusting individual income tax brackets, allowing tax exemptions for certain foreign-sourced dividend income, and implementing anti-base erosion measures to discourage profit shifting overseas.

In August 2022, President Biden signed the Inflation Reduction Act (IRA), bringing targeted corporate tax reforms into effect. Notably, this law imposes a 15% minimum tax on corporations with annual book profits exceeding $1 billion, introduces a 1% excise tax on stock buybacks, and expands tax incentives for clean energy investments. These updates aim to balance fiscal responsibility with long-term economic sustainability. Tax enforcement is managed separately: the Internal Revenue Service (IRS) handles federal taxes, Customs and Border Protection collects tariffs, and state or municipal agencies administer regional levies.

Major Taxes and Current Rates in the U.S.

Under federal tax law, U.S. tax residents—including both individuals and businesses—are taxed on their worldwide income. For corporations, this includes earnings from foreign branches regardless of whether those profits are repatriated. To prevent double taxation, foreign income taxes paid can be credited against U.S. tax liability, subject to specific rules and limitations.

Corporate Income Tax

Prior to 2017, federal corporate tax rates followed a progressive scale. Following the TCJA, the rate was simplified to a flat 21% for taxable income earned after December 31, 2017. This change aimed to enhance U.S. competitiveness globally and stimulate domestic investment. While some proposals have surfaced to increase the rate, no legislation has passed as of 2025.

Individual Income Tax

The TCJA preserved the seven-bracket progressive structure but adjusted the rates and thresholds. From 2018 through 2025, the federal individual income tax brackets stand at 10%, 12%, 22%, 24%, 32%, 35%, and 37%. These provisions are currently set to expire after 2025 unless extended by Congress, creating potential uncertainty for future planning.

Sales and Use Tax

Sales tax is administered at the state level, with 45 states and the District of Columbia imposing it. Rates vary widely—from about 4% to over 9%—depending on jurisdiction. It applies primarily to retail sales of tangible goods and select services. Use tax complements sales tax by applying to purchases made outside a taxpayer’s home state but used within it, ensuring tax fairness across borders.

Property Tax

Most U.S. states and municipalities levy property taxes on both real estate and personal property located within their boundaries. The assessed amount is typically calculated as the market value of the asset multiplied by an assessment ratio and then by the applicable tax rate. Property taxes remain a critical revenue source for local governments, funding schools, infrastructure, and public services.

Excise Tax

Federal and state governments impose excise taxes on specific goods and activities. Common examples include fuel (gasoline and diesel), air travel, indoor tanning services, and manufacturing certain products. These taxes are often designed to reflect usage costs or discourage harmful behaviors while generating dedicated revenue streams.

Stamp Tax

The U.S. federal government does not impose a general stamp duty. However, several states and local authorities apply stamp-like taxes on real estate transfers and mortgage financing transactions. These fees vary by location and transaction type, often based on the value of the property or loan amount.

Digital Services Tax

As of 2025, the United States has not enacted a federal digital services tax or similar levy targeting digital platforms. Some lawmakers have proposed such measures to address perceived imbalances in how tech giants are taxed, but no nationwide policy exists. Internationally, the U.S. continues to oppose unilateral digital taxes imposed by other countries, advocating instead for multilateral solutions through frameworks like the OECD’s Pillar One agreement.

Carbon Tax and Emissions Regulation

The U.S. still lacks a national carbon pricing mechanism such as a carbon tax or emissions trading system. However, the Inflation Reduction Act offers substantial tax credits for carbon capture, clean hydrogen production, and renewable energy projects—effectively incentivizing decarbonization without direct taxation. Some states, including California and members of the Regional Greenhouse Gas Initiative (RGGI), have implemented cap-and-trade programs, signaling growing subnational momentum.

Other State-Level Levies

Beyond standard taxes, certain states impose additional charges like franchise taxes (e.g., Texas, Tennessee) or capital stock taxes (e.g., Delaware). These apply regardless of profitability and are based on equity or net worth. Importantly, state and local taxes paid can generally be deducted when calculating federal taxable income, subject to the $10,000 cap on state and local tax (SALT) deductions established by the TCJA.

For investors seeking detailed guidance on cross-border compliance, the official website of China's State Taxation Administration provides the Investment Tax Guide for Chinese Residents in the United States, offering valuable insights into bilateral considerations.

Special Economic Zones in the United States

The U.S. designates Foreign Trade Zones (FTZs) to promote international trade and industrial efficiency. To qualify, zones must permit activities such as assembly, packaging, testing, storage, repair, and processing. If operations result in a change in tariff classification or domestic status, approval from the Foreign-Trade Zones Board is required. Retail sales and residential use are prohibited within FTZs. Typically, these zones must lie within 60 miles or 90 minutes’ drive from a U.S. Customs port of entry. Companies requesting a subzone must justify its economic benefit through a formal cost-benefit analysis.

About Foreign Trade Zones

Established under the Foreign-Trade Zones Act of 1934 and its amendments, FTZs fall under the oversight of the U.S. Department of Commerce’s International Trade Administration. Both federal and customs authorities must approve zone creation. FTZs are categorized into general-purpose zones (‘grantee sites’) and subzones designated for specific companies or uses, offering tailored operational flexibility.

Key Regulatory Frameworks and Jurisdictional Information

Detailed information on active FTZ locations across U.S. states is available through the International Trade Administration’s public database. Businesses exploring opportunities in these zones should evaluate logistical advantages, regulatory compliance requirements, and potential savings on duties and inventory costs. For global professionals navigating cross-border transitions, SailGlobal offers expert offshore human resource and relocation advisory services, helping ensure smooth compliance and integration.