As of January 1, 2025, nine states across the United States will implement individual income tax rate reductions. This is part of a much larger state legislative trend aimed at lessening the tax load on their residents, something many chose to do in the wake of post-pandemic financial windfalls. Below is an in-depth exploration of each state and specifics regarding its tax cuts.
Tax cut overview
They include Indiana, Iowa, Louisiana, Mississippi, Missouri, Nebraska, New Mexico, North Carolina, and West Virginia. The changes are largely driven by Republican-controlled legislatures and governors who argue that cutting taxes can boost competitiveness and lure businesses and residents, but critics say such cuts would jeopardize public services over time.
The Tax Foundation has noted the cuts were part of a larger trend in which many states acted to lower tax rates after revenues had risen significantly in the pandemic. These are going to bring about dramatically different implications from state to state, and they’re going to hit taxpayers very differently depending on income levels and economies in specific jurisdictions.
State-by-State tax changes
Indiana
Indiana will lower its individual income tax rate from 3.05% to 3% effective January 1, 2025. The change will mean modest savings for taxpayers; for example, a worker earning $65,000 per year could pay about $33 less in tax. Indiana’s action is part of a longer-term plan to lower its income tax rate even further to 2.9% by 2027.
Iowa
Iowa is moving to a flat 3.8% income tax, down from its current 5.7% top rate. The move comes after years of tax reforms by Republican lawmakers to lessen the burden of the tax structure and give relief to state residents. Governor Kim Reynolds said the cuts will save Iowans an estimated $1 billion over the next two years.
Louisiana
In Louisiana, the individual income tax rate will be lowered to a flat rate of 3%, replacing the prior graduated system whose top rate was 4.25%. This is a big cut for many taxpayers: for example, those with income between $30,000 and $40,000 will find their state taxes reduced by about 50%. But this tax reduction is being offset by an increase in the state sales tax from 4.45% to 5%, in an attempt to recover revenue losses from the income tax cut.
New Mexico
New Mexico is the only state with a Democratic trifecta to enact an income tax cut. The new system will have six brackets with rates ranging from 1.5% to 5.9% in a bid to provide relief primarily to low- and middle-income taxpayers. For instance, a married couple filing jointly will save an estimated $303 annually under the new system.
Mississippi
Mississippi will reduce its top individual income tax rate from 5% to 4% in state lawmakers’ ongoing efforts to streamline the state’s tax code as well as provide relief for residents grappling with rising living costs.
Missouri
Missouri will reduce its top marginal income tax rate from 4.8% to 4.7%. The slight decrease is a part of a series of gradual reductions in the tax burden on taxpayers while still maintaining essential public services.
Nebraska
The state’s top individual income tax rate will decrease from 5.84% to 5.2%, part of a broader plan that includes lower rates down to around 3.99% in 2027. Also, the state consolidated from four tax brackets to three, generally simplifying residents’ overall tax situation.
North Carolina
North Carolina will implement a reduction in its personal income tax rate from 4.75% to 4.6%. The action is the latest by state leaders in their quest to make the state’s economic environment more attractive with lower taxes.
West Virginia
West Virginia will reduce its top individual income tax rate to 6% from the current 6.5% as part of other expansive fiscal reforms to jumpstart the economy by having more disposable income to allow growth.
The upcoming income tax cuts of these nine states represent serious policy changes aimed at decreasing financial burdens on taxpayers while entering 2025. Supporters say such changes are going to increase economic competitiveness, attract new residents, and businesses, while critics caution about potential long-term impacts on public services and fiscal stability. As these states move forward with their plans, it will be important for citizens and policymakers alike to closely monitor how these changes will affect individual finances and state budgets in the years to come.
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