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Pass-Through Businesses are not Always Small Businesses

2 min readBy: Kyle Pomerleau

According to 2011 Census data, there are approximately 27 million businesses in the United States. Of these 27 million businesses, 90 percent of them are what are called “pass-through” businesses.

In regard to taxes, the most distinct feature of a pass-through businessA pass-through business is a sole proprietorship, partnership, or S corporation that is not subject to the corporate income tax; instead, this business reports its income on the individual income tax returns of the owners and is taxed at individual income tax rates. is that its income is taxed once on the owners’ individual taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. returns. Contrast this with c corporations, which pay their taxes directly at the entity level through the corporate income taxA corporate income tax (CIT) is levied by federal and state governments on business profits. Many companies are not subject to the CIT because they are taxed as pass-through businesses, with income reportable under the individual income tax. then again at the individual level through dividend and capital gains taxes.

Many people think of pass-through businesses as synonymous with small business. However, this isn’t always the case. In fact, there a significant number of pass-through businesses that have 500 or more employees.

Census data shows that the stereotype holds when you look at the distribution of the size of pass-through businesses: 82.5 percent of all pass-through businesses are owned and operated without any employees.

Only .22 percent of all pass-through business establishments employ more than 100 workers and 0.04 percent employ 500 or more workers.

Compared to c corporations, pass-through businesses are still much smaller on average. The same Census data shows that 1.6 percent of corporate businesses employ 100 or more employees and 0.36 percent employ 500 or more employees. 44 percent employ between 1 and 100 employees.

However, in absolute terms, there are about as many pass-through businesses with 500 or more employees than there are traditional c corporations. According to the Census, there are approximately 9573 pass-through businesses with 500 or more employees and 9434 c corporations with 500 or more employees.

Pass-through businesses seem a lot smaller due to the fact that 21 million of them have zero employees.

To be fair, corporations with 500 or more employees average about 4000 employees a piece while pass-through businesses average 1000 a piece.

Number of Businesses by Employment Size and Type

Size of Business (Employees)

C Corporations

Pass-Through Businesses

Zero Employees



1 to 100 Employees



Greater than 100



Greater than 500



Nonetheless, it still isn’t entirely accurate to conflate pass-through businesses with small businesses. Many of them are significant employers.