So, how does differ from our current system? The federal tax system uses a progressive tax rate, so the more income an individual makes, the higher their tax rate. However, there is still the standard deduction in place. In 2014, North Carolina enacted a flat state income tax of 5.25 percent and eliminated the earned income tax credit and personal exemptions as well as common deductions. You’ve already received some experience in flat tax. For example, if the flat tax rate is 20 percent, then a household with an adjusted gross income of $50,000 per year would pay $10,000 in income tax and a household with an adjusted gross income of $500,000 would pay $10,000 per year. What Is a Flat Tax?Ī flat tax system levies a set tax rate on every citizen, regardless of their income. Our CPA firm is exploring what the flat tax is, its advantages and disadvantages over the existing code, and whether we believe a flat tax will replace the existing system. Every so often, an article or speech will make the rounds about how it would benefit all Americans to replace the current income tax structure with a flat tax.
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