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While the federal government applies a consistent tax system to every citizen, states set their own tax rates independently of Uncle Sam. States can apply flat taxes, graduated taxes or no taxes at all to their residents. If you are unfamiliar with your state’s current income tax system, learning about it can help you compare how much you would pay by staying or moving to another part of the country.
If you’re looking for hands-on guidance with tax planning, a financial advisor can help you lower your tax burden.
What Is a Flat Income Tax?
A flat income tax means that all taxpayers, regardless of their income level, pay the same percentage of their income in taxes. The tax rate remains constant or proportional for all taxpayers, regardless of their taxable income.
For example, say your state has a flat 15% tax rate. A taxpayer earning $30,000 would pay 15% of their income in taxes ($4,500), and a taxpayer earning $300,000 would also pay 15% of their income ($45,000). So, while the tax percentage stays the same across income levels, your specific income determines how much you owe in taxes.
What States Have a Flat Income Tax?
In 2026, 15 states have flat income taxes.
| State | Flat Income Tax |
|---|---|
| Arizona | 2.50% |
| Colorado | 4.40% |
| Georgia | 5.19% |
| Idaho | 5.30% |
| Illinois | 4.95% |
| Indiana | 2.95% |
| Iowa | 3.80% |
| Kentucky | 3.50% |
| Louisiana | 3.00% |
| Michigan | 4.25% |
| Mississippi | 4.00% after first $10,000 |
| North Carolina | 3.99% |
| Ohio | 2.75% |
| Pennsylvania | 3.07% |
| Utah | 4.50% |
Flat Tax Rate vs. Graduated-Rate Progressive Income Taxes
A flat tax rate imposes the same percentage of taxes on all income levels. While some states have this system, most impose a graduated, or progressive, rate system. The federal government also has graduated rates.
In a progressive tax system, the tax rate increases as income levels rise. Higher-income individuals pay a higher percentage of their income in taxes than those with lower incomes.
The United States federal tax brackets for 2026 reflect this pattern. Specifically, the rates are 10%, 12%, 22%, 24%, 32%, 35%, and 37%. The higher your income, the higher your taxes are because of the escalating percentages.
A significant clarification about the progressive tax system is that the rates apply to different income levels. For example, say you’re a single filer with $200,000 of annual income. This means the top portion of your income (all income above $105,700) gets taxed at 24% for tax year 2026. This means $94,300 is subject to this tax rate.
Looking at the tax table, you see that most of your income is below this bracket. The income between $105,700 and $201,774 is taxed at 24%, and so on. So, each tax rate applies to part of your income, with lower percentages applying to lower levels of income.
Advantages of Flat Income Tax States
As you can see, progressive or graduated-rate tax systems can be complex. On the other hand, a flat tax rate is straightforward and applies the same rate to a taxpayer’s entire income.
The key to understanding how a flat state income tax affects you is to evaluate your income and cost of living. For example, Colorado has a higher income tax rate than Arizona. This means a Colorado resident with a $50,000 income would pay $2,200, while an Arizona resident with the same income would only pay $1,250. However, Colorado has a lower cost of living, offering greater savings compared to Arizona.
For comparison, both figures are lower than California’s rate, where a single filer with $50,000 in income would pay over $8,850 in income taxes, according to SmartAsset’s California income tax calculator. In many cases, flat taxes can benefit higher-earning taxpayers more than graduated rates, where the percentages increase with income.
Downsides to Flat Income Tax State
A flat income tax can also extract more income from lower-wage earners who need more money for basic expenses. For example, if the federal government switched to a 20% flat tax rate, families with incomes of $50,400 or more would pay more taxes than they do currently. So, graduated rates can help keep taxes low for households with modest incomes.
Some states have graduated systems with forgiving rates that benefit lower-income earners. In the example before, the single filer with $50,000 would pay less income taxes in California – about $8,800 for 2026. The state’s graduated income taxes apply rates of 1%, 2% and 4% in ascending order, allowing taxpayers to keep higher percentages of their wages.
These brackets allow taxpayers with modest incomes to pay less into taxes and more into housing, food and fuel. Plus, California imposes an extra 1% tax on incomes above $1,000,000 to help fund its mental health services. This way, earners with ample financial capacity help fund programs for earners who may not otherwise be able to afford critical health services.
How a Financial Advisor Can Help Manage Your Tax Liability
When you live in or are considering a state with a flat income tax, the main question is how that single rate affects your take-home income over time. While flat taxes are straightforward, their impact depends on your earnings, other state taxes and how your income may change in the future.
Decisions in this area often involve more than choosing a location. You may be evaluating whether a flat-tax state lowers your taxable income, how state taxes interact with federal brackets or how different types of income, such as wages, investments or retirement accounts, are treated under a flat system.
A financial advisor can help examine how a flat income tax fits into your broader financial plan. This can include projecting after-tax income, comparing flat-tax states with progressive-tax states and reviewing how different income sources are taxed over time. Advisors can also help clarify how tax liability may shift as income rises, falls or transitions into retirement.
You may want to ask how much state tax you could owe at different income levels and whether a flat tax remains favorable if income changes. You may also consider how other state costs affect overall finances.
These questions often involve timing and tradeoffs. This is where a financial advisor or tax preparer can help connect tax structure to long-term planning decisions.
Bottom Line
A flat income tax system, as exemplified by states like Kentucky and Michigan, imposes a uniform tax rate on all income levels. The simplicity of this model is evident, offering clarity and ease of administration. However, its impact on individuals varies, and the choice between a flat income tax and a progressive tax system is multifaceted. Whether it is advantageous or disadvantageous for taxpayers depends on income, cost of living and specific state regulations.
Tax Planning Tips
- A financial advisor can help you take advantage of tax benefits when filing in
your state. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now. - Getting an estimate of your tax bill before filing can help you see if you’ll owe or qualify
for a return. An online income tax calculator will show how much you owe in federal,
state, and local income taxes.
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