Small Businesses and Their Income Tax Burden

Combined, these taxes can hit a small business hard when it eventually grows and earns more income. In California, for example, the top marginal income tax rate on pass-through businesses tops 51.9 percent. Hawaii (50.4) and New York (50.2 percent) also have top marginal tax rates on pass-through businesses over 50 percent. Even in states with no income tax, the top marginal tax rate on pass-through business income is 42.6 percent.