Flat Tax
A tax system with a single rate applied to all income levels. Several US states use flat income tax rates, including Illinois (4.95%), Colorado (4.4%), and Pennsylvania (3.07%).
A flat tax applies the same rate to all taxable income, regardless of how much you earn. Unlike progressive systems with multiple brackets, a flat tax has just one rate. Several US states use flat income taxes, including Illinois (4.95%), Colorado (4.4%), Pennsylvania (3.07%), Indiana (3.05%), Michigan (4.25%), and Utah (4.65%).
Supporters of flat taxes argue they are simpler, more transparent, and create fewer distortions in economic behavior. Since the rate does not change with income, there is no incentive to defer or shift income across brackets. Administration is also simpler with one rate to apply.
In practice, even flat-tax states maintain some progressivity through personal exemptions and standard deductions that effectively exempt lower-income earners from tax entirely. A single person earning $20,000 may pay an effective rate well below the flat rate after exemptions, while someone earning $500,000 pays close to the full rate. Several states have recently converted from progressive to flat tax systems, including Arizona, Iowa, and Georgia.
Related Terms
Progressive Tax
A tax system where rates increase as income rises, with higher earners paying a larger percentage. The US federal income tax and most state income taxes use progressive brackets.
State Income Tax
Income tax levied by individual states, in addition to federal income tax. Rates and structures vary widely — some states have no income tax, while others have rates up to 13.3%.
Effective Tax Rate
Your total federal income tax divided by your total income, expressed as a percentage. It represents the average rate at which your income is actually taxed.