A flat tax system applies the same tax rate to every tax payer regardless of their income bracket. In this video, you'll learn a simple way to understand this concept through an easy and brief explanation. Income from dividends, distributions, capital gains, or other investments are not taxed in most flat tax systems. Supporters propose it gives taxpayers an incentive to earn more because they won’t be penalized for entering a higher tax bracket. The United States uses a type of flat tax for payroll – where the IRS levies a twelve point four percent tax split evenly between employees and employers.