8 states reduced their income tax rates starting January 1. Does your state make the list?

Some Americans to Benefit from State Income Tax Reductions in the New Year

As the new year begins, certain Americans can look forward to potential savings on their income taxes. These tax reductions are not being implemented at the federal level, but rather by several individual states. According to the Tax Foundation, a nonprofit research organization, eight states have enacted lower income tax rates effective January 1.

Experts note that by allowing residents to keep more of their earnings, these states aim to encourage economic expansion and make themselves more attractive to workers, entrepreneurs, and investors.

The Tax Foundation commented that these changes highlight a continued commitment among states to adopt reforms that strengthen their competitiveness and foster ongoing economic progress.

States Reducing Income Tax Rates

The following states have introduced lower income tax rates:

• Indiana: The flat tax rate has been reduced to 2.95% from last year’s 3%. An additional decrease to 2.9% is scheduled for January 1, 2027. Legislation also allows for further reductions, potentially reaching 2.55% in 0.05% steps every even-numbered year starting in 2030, depending on revenue benchmarks.
• Kentucky: The flat income tax rate has dropped from 4% to 3.5%.
• Mississippi: The flat rate is now 4%, down from 4.4%, marking the final stage of a planned multi-year reduction of the state’s individual income tax.
• Montana: The highest tax bracket rate has decreased to 5.65% from 5.9%, with another reduction to 5.4% set for 2027. The lower 4.7% rate remains, but its income bracket has been expanded.
• Nebraska: The top tax rate has been lowered to 4.55% from 5.2%, as part of a gradual plan to bring the rate down to 3.99% by 2027.
• North Carolina: The flat tax rate has been reduced to 3.99% from 4.25%, completing a multi-year effort to lower the individual income tax rate.
• Ohio: The state has adopted a flat 2.75% rate for income above $26,050, with no tax applied to income below that amount.
• Oklahoma: The top rate has been cut to 4.5% from 4.75%, and the number of individual income tax brackets has been reduced from six to three.