I live in USA. I am working for a small company that has around 35 employees, that is owned by one person (my employer).

My employer pays taxes on the income generated by the company, pays my salary, and keeps the remaining money with him.

As my employer is already paying taxes on the money and is paying the same money to us, why would I pay taxes on the same money every year? Is there a way that I can avoid paying taxes in this scenario?

I mean why is tax being paid on the same money multiple times?

  • 1
    How do you know that your employer has paid taxes on the money you get as salary or wages? How do you know that the company that employs you has paid taxes on all the money it received from outside sources? Dec 9 '15 at 19:45
  • My company's all income come from outside sources. And every year he pays taxes on that money.
    – The Guest
    Dec 9 '15 at 19:48
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    Following that line of thinking you could argue that no one should pay taxes because there is no original source of the money. Your customers paid taxes on the money when they got it from their customers who paid taxes when they got it from their customers, and so on.... The "Same money" has no real meaning here.
    – JohnFx
    Dec 9 '15 at 19:56
  • NOT same money, I am saying SAME INCOME, and notice that this is not about provider and customer relationship.
    – The Guest
    Dec 9 '15 at 20:02
  • So you are stating your employer has no deductions? That seems a bit hard to accept. If there are deductions then there is some income not being taxed.
    – JB King
    Dec 9 '15 at 20:14

Businesses do not pay income tax on money that they pay out as salary to their employees. Businesses generally only pay income tax on profit.

Profit is the money that comes in (revenue) minus the business expenses. Payroll to the employees is a deductible business expense.


Your wages are an expense to your employer and are therefore 100% tax deductible in the business income. The company should not be paying tax on that, so your double-tax scenario, as described, isn't really correct.

[The phrase "double taxation" with respect to US corporations usually comes into play with dividends. In that case, however, it's the shareholders (owners) that pay double. The answer to "why?" in that case can only be "because it's the law."]

  • 2
    That is why in Australia share investors get a franking credit for any dividends with tax already paid on it (called Franked Dividends), to avoid this double taxation. Our company tax is currently 30%, so if an investor receives a dividend of $70 they receive a franking credit of $30 (30% of $100) to offset their tax from other sources or as a tax return if they pay little or no tax (eg pensioners).
    – Victor
    Dec 9 '15 at 20:39
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    While the company might not owe taxes itself on revenue that covers salary expenses, it is likely remitting a portion of those expenses, on behalf of each salaried employee, toward personal income taxes. Dec 9 '15 at 20:40
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    @ChrisW.Rea Of course, but that's the employee's money reportable with the employee's tax return. There's no double taxation there.
    – user32479
    Dec 9 '15 at 21:10
  • @Brick I know. But it might be the source of confusion. Dec 10 '15 at 22:51
  • @Victor Having never heard that term before, I totally read that as an unusual cuss: I just got a franking credit, that's just franking fantastic.
    – neminem
    Dec 10 '15 at 23:53

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