States With Flat Income Tax Rates for 2019
A flat tax rate is exactly that—flat and even across the board. All taxpayers pay the same rate regardless of how much they earn. The concept has a lot of support but has also met with much opposition.
Supporters note that it encourages wealth because top earners aren't punished with higher tax rates. The system is far simpler, and some say it's much fairer than the progressive tax system in place in most states. The map below illustrates which states have a flat income tax. Hover over the teal-colored states for more information.
Opponents of the flat tax system argue that it actually places an unfair burden on low-income earners. The rate ranges from approximately 3 percent to 5 percent of income and eliminates many tax deductions and exemptions so that earners pay taxes on more income.
Giving up 5 percent of $100,000 in income leaves plenty of money for fixed-cost necessaries such as a gallon of milk, but 5 percent of $10,000 might put a necessity out of reach. The argument is that this forces more low-income residents toward public assistance to make ends meet.
As for the middle class, opponents say that the flat tax can also negatively affect them, and by extension, the economy, because it doesn't really encourage investing or saving toward retirement through tax breaks.
That said, the tax rate in flat tax states doesn't always apply to unearned income such as interest from investments and capital gains from the sale of assets. Taxpayers who can afford to invest and make their money grow can still realize these profits tax-free at the state level.
A Comparison of Flat Tax States
Tax concepts are rarely black and white, and specific rules can differ among the states that have adopted a flat tax system. As of January 2019, state individual income taxes for flat tax states include:
- Colorado: 4.63 percent. Individuals who are single can claim a standard deduction of $12,200, while those who are married can claim a standard deduction of $24,400. There are no personal exemptions.
- Illinois: 4.95 percent. The personal exemption allowed for individuals is $2,225 per person, $4,450 for married couples, and $2,225 for dependents. There's no standard deduction.
- Indiana: 3.23 percent. Personal exemptions are modest, just $1,000 if you're a single taxpayer up to $2,500 for each of your dependents, and $2,000 for married couples who file jointly. There's no standard deduction.
- Kentucky: 5.0 percent. In 2018, Kentucky became the ninth state to adopt the flat tax system. The standard deduction for individuals who are single or married is $2,530. There are no personal exemptions.
- Massachusetts: 5.05 percent. There's no standard deduction, but personal exemptions are somewhat generous at $4,400 for single taxpayers, twice that amount for married taxpayers filing joint returns. Unfortunately, there's only a $1,000 exemption for dependents.
- Michigan: 4.25 percent. This state has taxed income at a flat, constant level since October 2012. Voters resoundingly vetoed a flat tax rate increase in May 2015, prompting lawmakers to consider a "graduated" version of the tax instead, but no such legislation is pending as of 2017. There's no standard deduction, but personal exemptions are generous at $4,050 for both single taxpayers and dependents, and $8,100 for married taxpayers who file jointly.
- North Carolina: 5.25 percent. North Carolina collects the highest rate among all flat tax states. This state enacted its system in 2014 and eliminated its earned income tax credit and personal exemptions at the same time, as well as deductions for medical expenses, retirement contributions, child care, and college 529 plans. For standard deductions, individuals who are single can claim $10,000, while those who are married can claim twice that amount.
- Pennsylvania: 3.07 percent. This rate is the lowest among flat tax states. Pennsylvania law does not recognize tax exemptions or standard deductions for individuals or their dependents.
- Utah: 4.95 percent. Although the state does not technically have a standard deduction, it does offer a nonrefundable tax credit equal to 6 percent of your federal deduction, and it also allows personal exemptions.