Where state income taxes hit the middle class hardest

If you’re earning $50,000 a year, where you live could mean the difference between paying less than $50 or about $4,000 in state income taxes annually. That’s a lot more in your pocket — or your state’s coffers — depending on whether you call North Dakota or Oregon home.

This wide disparity highlights a shifting tax landscape across the United States, one where location alone can drastically shape a worker’s financial reality. Behind these numbers is a growing trend: More and more U.S. states are adopting flat tax systems on wages, where everyone in the state pays the same income tax rate, regardless of income level.

The number of U.S. states imposing a flat income tax has jumped from eight states in 2019 to 14 states in 2025. The most recent adopters, Louisiana and Iowa, are implementing this one-tax-for-all strategy for the first time this year.

With so much change happening in such a short period of time, the Germany-based tax firm BuchhaltungsButler and the data research experts at DataPulse Research have teamed up to map the current state-level income taxes across the country. The team analyzed each state's income taxes on worker pay, with special focus on middle-class workers.

How the states stack up

The highest income tax rate for the middle class is found in Oregon, where median-wage workers pay up to 8.75%. That rate is followed by California (8%) and Hawai‘i (7.6%). These top three states have progressive tax systems, where some income is taxed at a lower rate, however no income in these states is entirely tax-free.

At just 1.95%, North Dakota imposes the lowest rate on its middle-income earners (disregarding the nine states with no income tax). It is followed by Arizona (2.5%) and Ohio (2.75%). Of these three low-rate states, only Arizona has a flat tax on every dollar earned. The other two states have progressive tax rates, and median-wage workers enjoy a 0% rate on some of their income. In North Dakota, this is especially beneficial: the median income is approximately $50,000, and there’s no tax on the first $48,500 earned.

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Deductions can help reduce tax liability. Many filers take a standard deduction — about three-quarters of states with income taxes offer it — but the value is different for every state. In the high-tax state of Oregon, for instance, single filers can take a standard deduction of $2,800, while in the low-tax state of North Dakota they can deduct $15,000. In effect, filers can subtract this fixed dollar amount from their adjusted gross income to reduce their taxable income.

Personal exemptions can also reduce tax liability, but exemptions depend on both the state and the filer’s status, such as whether they have children or other dependents.

The flat tax wave: seven states in the last seven years

What’s striking about the flat-tax trend is that it is happening rather quickly. Seven (or 14% of the states) moved to flat tax in just as many years. There’s just one state that’s bucked the trend, and that’s Massachusetts. In 2023 it ditched its flat tax rate when it added a higher bracket for millionaires.

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Historically, there’s not been a lot of switching between progressive tax and flat tax systems. Before 2019, only three states — Colorado, Utah, and North Carolina — moved to a flat tax system between 1987 and 2014. The only flat tax states before 1987 were Illinois, Indiana, Michigan, and Pennsylvania — each of which adopted that structure when their income tax systems were first created, according to the Tax Foundation.

But the pandemic prompted a lot of states to consider tax reform, noted Jared Walczak, vice president of State Projects at the Tax Foundation, who observed the trend on a podcast in 2022. For one thing, state governments had a lot of cash thanks to an influx of federal funds from COVID-19 relief bills and more revenue as Americans spent more money (which, in turn, resulted in more sales taxes and corporate taxes being collected). The opportunity was ripe — but there was also some herd mentality: "States know they have to compete with each other more than ever before. People are mobile. Businesses are more mobile than ever before. States are really watching what their neighbors are doing, and they've been responding to that in tax policy," Walczak said at the time.

While the pandemic is behind us, states are still moving in the direction of the flat tax: In May, a flat-tax bill passed in South Carolina's House of Representatives. That same month, legislators in Oklahoma agreed to consolidate six brackets down to three, and the Governor is eager to streamline further (and eventually drop income taxes altogether).

Is a flat tax system better for workers?

The answer depends on your perspective. Flat taxes are simpler because they impose a set rate on every dollar earned by every worker. Politicians are also less likely to raise flat taxes because everyone would feel the increase. The uniformity, simplicity, and stability of a flat tax help with long-term planning, which is especially important for self-employed workers who are looking to build their businesses.

A typical progressive system, on the other hand, is more complicated because it taxes different portions of income at different rates, so that higher income levels are taxed at a higher rate. These tax systems are more easily adjustable because legislators can increase the tax rate for high earners while keeping the rate steady for the middle class.

Take Louisiana, for instance: Starting this year, a flat 3% income tax applies to workers who earn the median income of about $44,000, as well as workers who earn less, and those who make more. It’s simple and standard across the board.

Previously, workers in Louisiana incurred a 1.85% tax on the first $12,500 earned, followed by a 3.5% tax on earnings of $12,500 to $50,000. The top tax rate of 4.25% was then applied to any remaining income over $50,000. It was more complex, but some say it was more equitable. As Louisiana moves from a progressive tax to a flat tax, the lowest earners will be taxed at a higher rate this year than before, while higher earners will be taxed at a lower rate. (To prevent the new tax rate from burdening low-income taxpayers, Louisiana and other states that have shifted to a flat tax have increased the size of the standard deduction.)

Critics of the flat tax note that the wealthy benefit the most. When Arizona adopted a 2.5% flat tax in 2023, the Arizona Center for Economic Progress found that people making around the median income (between $44,000 and $70,000) saved $58 on average from the switch, while those in the top 1% ($579,000 or more) saved nearly $16,000 on average.

The fact is, in many progressive-tax states, the tax code already treats high earners and middle-income workers similarly.

In many states with progressive income taxes, the reality is that middle-class and high-income earners often pay the same top tax rate. There are 26 states with either flat taxes or progressive systems where the highest rate starts below $65,000. (See below chart.)

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The 15 states that tax the wealthy and ultra-wealthy at higher rates

Amidst the shift to flat income tax rates, 15 states have separate tax brackets reserved for the upper classes.

Ten of those states have a top tax rate that kicks in somewhere between $100,000 and $325,000. (Anyone earning $200,000 or more per year is among the top 10% of earners, regardless of their state.) These states are shown in the chart below.

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Some states, including North Dakota and Ohio, have only two brackets. Hawai‘i, with the most brackets of any state, imposes 12 different rates — five of which are above the median wage. Income over $350,000 is taxed at 11% in Hawaii.

Additionally, five states and Washington D.C., have tax brackets specifically for the very wealthy, including multimillionaires. California has the highest rate in the country at 13.3% on all earnings over $6 million. New York has the highest bracket in the country: The top tax rate (10.9%) is reserved for income over $25 million.

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The big picture

Simply looking at income tax rates for a given state — whether it’s a flat tax, progressive tax, or tax-free system — doesn’t paint the full picture. Credits and deductions make matters complicated; for instance, the standard deduction varies from state to state, and some tax filers deduct state income taxes from their federal return, which reduces their overall tax obligation.

It’s also helpful to keep in mind that states with low income tax rates (or no income taxes at all) may rely more heavily on other taxes, such as property taxes and sales taxes, to fill the gap. Therefore, income taxes are not the only barometer of tax burden.

Given all these considerations, accurately assessing an individual’s income tax liability is very challenging due to the complex and varied nature of tax structures within each state.

But what is certain is that states are increasingly implementing simpler, flat-tax systems on wages while some other states with modestly progressive tax systems are effectively imposing a single-rate tax as well.

Methodology

To analyze how state income taxes affect workers, the research team focused specifically on income from wages. We excluded other income sources like Social Security or capital gains. For consistency and clarity, we used data from the Bureau of Labor Statistics for May 2024 (the most recent month available), which provides annual wage estimates at the 10th, 25th, 50th (median), 75th, and 90th percentiles for each state.

We chose the median wage in each state as a representative marker for the middle class. Because median wages vary widely — from around $39,000 in Mississippi to over $62,000 in Massachusetts — we used state-level data rather than a single national median (about $49,500). This allowed us to more accurately reflect how tax thresholds intersect with income levels in different parts of the country.

To identify the top income tax rate that applies to each state's median wage earner, we used Tax Foundation data on state tax brackets and rates. For each state, we determined the highest marginal tax rate that would apply to a median wage worker, based on their income and the state's bracket structure. The tax rates are based on single filers, only.

We also visualized every state’s tax brackets to explore how far each system extends beyond the median — showing whether states apply higher rates to high-income and very-high-income earners, or if the top rate kicks in early and remains flat across the income distribution. These charts help illustrate whether a state’s tax system is genuinely progressive or merely appears to be.

Note: This analysis reflects marginal tax rates based on income brackets only. Actual tax liability depends on additional factors such as standard deductions, personal exemptions, tax credits, and filing status, which vary by state and individual circumstances.

This story originally appeared on BuchhaltungsButler, was produced by DataPulse Research, and was reviewed and distributed by Stacker.