States With Flat Income Tax Rates for Tax Year 2019
A flat tax rate is a rate that is 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 it's 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 places an unfair burden on low-income earners. The rate ranges from approximately 3.1% to 5.25% of income and eliminates many tax deductions and exemptions so that earners pay taxes on more income. The argument is that this forces more low-income residents toward public assistance to make ends meet, putting more of a burden on taxpayers.
Giving up 5% of $100,000 in income leaves plenty of money for fixed-cost necessaries such as housing and food, but 5% of $10,000 might put a necessity out of reach for many people.
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 February 2020, state individual income taxes for flat tax states include:
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.
The personal exemption allowed for individuals is $2,725 per person, $4,550 for married couples, and $2,725 for dependents. There is no standard deduction.
Personal exemptions are $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 is no standard deduction.
In 2018, Kentucky became the ninth state to adopt the flat tax system. During that same time, they eliminated itemized deductions for medical and dental expenses, casualty or theft losses, moving expenses, and premiums paid for health and long-term care insurance. The standard deduction for individuals who are single or married is $2,590, and there are no personal exemptions.
There is no standard deduction, but personal exemptions are somewhat generous at $4,400 for single taxpayers and $8,800 for married taxpayers filing joint returns. Unfortunately, there is only a $1,000 exemption for dependents.
Michigan has taxed income at a flat, constant level since October 2012. There's no standard deduction, but personal exemptions are generous at $4,400 for both single taxpayers and dependents, and $8,800 for married taxpayers who file jointly.
North Carolina (5.25%)
North Carolina collects the highest rate among all flat tax states. They enacted their system in 2014 and eliminated their earned income tax credit and personal exemptions at the same time. Deductions for medical expenses, retirement contributions, child care, and college 529 plans were also eliminated. For standard deductions, individuals who are single can claim $10,000, while those who are married can claim $20,000.
This rate is the lowest among flat tax states. Pennsylvania law does not recognize tax exemptions or standard deductions for individuals or their dependents.
Although the state does not technically have a standard deduction, it does offer a nonrefundable taxpayer tax credit equal to 6% of your federal deduction, and it also allows personal exemptions. The credit begins to phase out at $14,601 for single people and married couples filing separately, and $29,202 for married couples filing jointly.
Federation of Tax Administrators. "State Individual Income Taxes." Accessed Feb. 11, 2020.
Commonwealth of Kentucky. "Income Taxes." Accessed Feb. 11, 2020.
Commonwealth of Massachusetts. "Personal Income Tax Exemptions." Accessed Feb. 11, 2020.
National Conference of State Legislatures. "Tax Credits for Working Families: Earned Income Tax Credit (EITC)." Accessed Feb. 11, 2020.
Utah State Tax Commission. "Taxpayer Tax Credit." Accessed Feb. 11, 2020.