Some Americans may get a break on their state income taxes this year, with nine states cutting their individual income tax rates starting in 2025, according to one. Analysis From the Tax Foundation, a think tank that focuses on taxes.
These changes are part of a recently launched effort to cut taxes at the state level during the pandemic When many states found that they were short of tax revenue. But the left-leaning Institute on Taxation and Economic Policy (ITEP) has branded the trend “anti-tax drama” that could ultimately deteriorate public services.
Lawmakers commonly argue that lowering taxes can help make their states more competitive, thereby attracting businesses and new residents within their borders. Seven of the states that will reduce their individual income taxes in 2025 have legislatures controlled by Republicans as well as Republican governors.
“The evidence over the past four years indicates that many states understand and value the importance of creating and maintaining stable, pro-growth, and competitive tax codes,” Tax Foundation analysts said in a blog post on the 2025 changes. “
Here are the states where income taxes will be cut starting January 1, 2025, based on the Tax Foundation's analysis.
Indiana
Indiana, whose state legislature is controlled by GOP lawmakers and whose governor, Eric Holcomb, is a Republican, will reduce its income tax rate to 3% in 2025 from 3.05% in 2024.
This is a fairly small savings for middle-class residents, According Local news outlet IPB News estimates that the cut would result in a $33 tax cut for a worker making $65,000 a year.
iowa
Iowa, which also has a Republican trifecta that controls its statehouse and the governor's office, is lowering its individual income tax rate to a flat rate of 3.8% starting Jan. 1, from a top tax rate of 5.7% in 2024. Below, Des Moines Register reports,
The new flat tax rate was signed into law in May by Gov. Kim Reynolds, who along with state lawmakers argued that the state was collecting too much money from its residents, the publication said.
louisiana
Another state with a Republican trifecta in the Statehouse and the governor's office, Louisiana, is lowering its individual income tax rate to a flat 3% rate starting Jan. 1, with a graduated tax with a top rate of 4.25% in 2024.
Taxpayers in Louisiana who earn between $30,000 and $40,000 a year, the largest number of taxpayers in any category in the state, will see their state taxes reduced by 50%, to $338 a year. According For analysis from RESET Louisiana, a nonpartisan public policy think tank.
However, the state sales tax will rise to 5% in 2025, up from its previous 4.45% rate, partly to pay for the income tax cuts, the Tax Foundation noted.
mississippi
Mississippi, which also has a Republican legislature and governor, will reduce its individual income tax rate to 4.4% on Jan. 1, down from 4.7% in 2024.
This may not be the last tax cut for Mississippi residents, as Governor Tate Reeves is pushing to eliminate the state's personal income tax entirely, arguing that the move would prevent it from competing with Florida and other states without an income tax. Will help to do.
“And if we want to continue to see the kind of economic development successes that we've had, we have to be competitive from a tax standpoint,” Reeves said in November.
missouri
Missouri, another state with a Republican-controlled legislature and a Republican governor, will cut its state income tax on Jan. 1 from 4.8% to 4.7% in 2024.
cut is fifth income tax cut Under Gov. Mike Parson, who boosted the state's economy by announcing cuts earlier this year, he said 70,000 jobs were added in 2024 and “ranks first in the nation in job growth.”
nebraska
The income tax rate for Nebraska residents will drop to 5.2% on Jan. 1, from 5.84% in 2024, the Tax Foundation said. The Republican Party controls the state legislature, while the state governor is also a member of the GOP.
new mexico
New Mexico, which cuts income taxes on Jan. 1, represents the only state that sports a Democratic trifecta, meaning its legislature is controlled by party, while its governor, Michelle Lujan Grisham, is also a Democrat.
The Tax Foundation said individual income tax brackets will be lowered for all New Mexico residents starting Jan. 1, with the largest cuts going to low- and moderate-income taxpayers. Gov. Grisham's office said in a statement last year that a married couple filing jointly would save about $303 a year under the new tax brackets.
The state will now have six brackets, up from five in 2024, with rates ranging from 1.5% to 5.9%. Some tax rates will remain the same, but others will change. For example, the lowest bracket was 1.7% in 2024, According For local publication SourceNM.
North Carolina
North Carolina, whose legislature is controlled by the Republican Party while its governor is a Democrat, will reduce its tax rate to 4.5% on Jan. 1, down from 4.75% in 2024.
This isn't the last cut, as the personal tax rate will drop once again to 3.99% in 2026. According For High Point Enterprise.
West Virginia
West Virginia residents will see their income taxes reduced. about 4% The state, with a Republican-controlled legislature and a Republican governor, recorded an annual revenue surplus.
According to the Tax Foundation, the top tax rate will drop from 5.12% in 2024 to 4.82% on Jan. 1. Governor Jim Justice has also pushed for deep cuts, saying in July that “we need to continue to move toward eliminating the individual income tax.”
Contributed to this report.