These Nine States Will Cut Income Taxes This Year
While tax rates always vary from state to state, what you can be sure of is that a portion of your income is eaten up with every paycheck. Some good news: As of January 1, 2025, income tax rate cuts went into effect in nine states. Of these nine states, some cuts are minimal, while others are quite significant. Of course, no matter what state you live in, I recommend using a spreadsheet ahead of time to track your tax information throughout the year. In the meantime, let’s see which of the lucky ones will be able to relax in 2025.
These States Cut Their Income Tax Rates
Here’s a basic breakdown of the specific changes in each state:
Indiana
The Hoosier state has made a small cut, with its income tax rate dropping from 3.05% to 3% in 2025. While this is a small change, it represents a continued effort to reduce the tax burden on Indiana residents.
Iowa
Iowa is making significant changes to simplify its tax structure, moving to a flat income tax rate of 3.8% in 2025. This represents a significant reduction from last year’s top rate of 5.7%, potentially resulting in significant savings for higher-income residents.
Louisiana
Following a similar approach in Iowa, Louisiana moved from a graduated system to a flat tax rate of 3%, down from the previous top rate of 4.25%. Under this new system, residents who fall into the $30,000-$40,000 income bracket (the most common bracket in the state) will pay approximately $338 per year in income taxes.
Mississippi
Mississippians will see their tax rate drop from 4.7% to 4.4% in 2025. Notably, state officials have expressed a desire to eventually eliminate the income tax entirely, although no specific timeline has been set.
Missouri
Missouri implemented a modest rate cut, from 4.8% to 4.7%. While the changes are minimal, they continue the state’s practice of gradual tax relief.
Nebraska
Nebraska taxpayers will benefit from a larger rate cut, with rates dropping from 5.84% to 5.2%. The reduction represents one of the largest percentage drops among the nine states that made the change.
New Mexico
New Mexico retains its graduated income tax system, but reduced rates in two of the six categories. For those earning less than $5,500 annually, the rate will drop from 1.7% to 1.5%, and for residents earning between $16,500 and $33,500, the rate will drop from 4.7% to 4.3 %.
North Carolina
The Tar Heel State lowered its rate from 4.75% to 4.5% and plans further reductions. The state has already announced its intention to reduce the rate to 3.99% in 2026, demonstrating a long-term commitment to tax relief.
West Virginia
West Virginia took a different approach, implementing a full 4% cut in general income taxes by 2025. While specific rates were not detailed, the state joins Mississippi in expressing interest in eventually eliminating income taxes entirely.
Also of note: Tax rates will not change in 2025, but the thresholds for each bracket are being raised to account for inflation and scale creep.
The bottom line is that, as always, you should consult with tax professionals to understand how these changes will impact your specific situations and to ensure you take full advantage of the new rates.