🗂️Keep in Mind These Nine States Will Have Lower Income Taxes This Year

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While tax rates always vary from state to state, what you can be sure of is a chunk of your income getting eaten up each paycheck. Some bright news: As of January 1, 2025, income tax rate cuts have gone into effect in nine states. Of these nine states, some cuts are minimal, while others are fairly sizable. Of course, whatever state you live in, I recommend getting ahead of the game right now by using a spreadsheet to track tax-related information throughout the year. For now, let's take a look at which lucky residents will catch a break in 2025.

These states have lowered their income tax rates​

Here's a basic breakdown of specific changes in each state:

Indiana​

The Hoosier State has implemented a modest reduction, with the income tax rate decreasing from 3.05% to 3% in 2025. While small, this change represents continued efforts to reduce the tax burden on Indiana residents.

Iowa​

Iowa is making a significant shift to simplify its tax structure, moving to a flat income tax rate of 3.8% in 2025. This marks a substantial decrease from last year's top rate of 5.7%, potentially resulting in considerable savings for higher-income residents.

Louisiana​

Following a similar approach to Iowa, Louisiana has transitioned from a graduated system to a flat tax rate of 3%, down from a previous top rate of 4.25%. Under this new system, residents who fall in the income bracket of $30,000-$40,000 (the most common bracket in the state) will pay approximately $338 annually in income taxes.

Mississippi​

Mississippi residents will see their tax rate decrease from 4.7% to 4.4% in 2025. Notably, state officials have expressed ambitions to eventually eliminate income taxes entirely, though no specific timeline has been established.

Missouri​

Missouri has implemented a modest reduction, with rates dropping from 4.8% to 4.7%. While the change is minimal, it continues the state's pattern of gradual tax relief.

Nebraska​

Nebraska taxpayers will benefit from a more substantial cut, with rates decreasing from 5.84% to 5.2%. This reduction represents one of the larger percentage drops among the nine states making changes.

New Mexico​

New Mexico maintains its graduated income tax system but has reduced rates in two of its six brackets. Those earning less than $5,500 annually will see their rate decrease from 1.7% to 1.5%, while residents earning between $16,500 and $33,500 will experience a reduction from 4.7% to 4.3%.

North Carolina​

The Tar Heel State has reduced its rate from 4.75% to 4.5%, with plans for further reductions. The state has already announced its intention to lower the rate to 3.99% in 2026, demonstrating a long-term commitment to tax relief.

West Virginia​

West Virginia has taken a different approach, implementing an across-the-board 4% reduction in overall income taxes for 2025. While specific rates haven't been detailed, the state joins Mississippi in expressing interest in eventually eliminating income taxes completely.

Also of note: Tax rates aren't changing in 2025, but the thresholds for each bracket are rising to account for inflation and "bracket creep."

The bottom line is, as always, you should consult with tax professionals to understand how these changes will affect your specific situations and to ensure you're taking full advantage of the new rates.
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