These 9 states are cutting income taxes on Jan. 1. Here's where taxpayers will get a break.
Some Americans could get a break on their state income taxes this year, with nine states kicking off 2025 with a reduction in their individual income tax rates, according to an analysis from the Tax Foundation, a think tank that focuses on taxes.
The changes are part of a recent push to cut taxes at the state level that started during the pandemic when many states found themselves flush with tax revenue. But the left-leaning Institute on Taxation and Economic Policy (ITEP) has termed the trend an "anti-tax playbook" that could eventually crimp public services.
Lawmakers typically argue that lowering taxes can help make their states more competitive, helping to draw businesses and new residents within their borders. Seven of the states that are lowering their individual income taxes in 2025 have legislatures that are controlled by Republicans, as well as Republican governors.
"The evidence of the past four years indicates that many states understand and value the importance of creating and maintaining a stable, pro-growth and competitive tax code," Tax Foundation analysts noted in a blog post on the 2025 changes.
Here are the states where income taxes will be cut starting on Jan. 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 shave its income tax rate to 3% in 2025, down from 3.05% in 2024.
That's a fairly small savings for middle-class residents, according to local news outlet IPB News, which estimates the reduction will result in a tax cut of $33 for a worker earning $65,000 a year.
Iowa
Iowa, which also has a Republican trifecta controlling its statehouse and governor's office, is trimming its individual income tax rate to a flat rate of 3.8% starting Jan. 1, down from a top tax rate of 5.7% in 2024, the Des Moines Register reports.
The new flat tax rate was signed into law by Gov. Kim Reynolds in May, who, along with state lawmakers, have argued that the state was collecting too much money from its residents, the publication noted.
Louisiana
Another state with a Republican trifecta in the statehouse and governor's office, Louisiana is cutting its individual income tax rate to a flat rate of 3% starting Jan. 1, down from a graduated tax with a top rate of 4.25% in 2024.
Taxpayers in Louisiana who earn between $30,000 to $40,000 a year, the largest number of taxpayers in any bracket in the state, will see their state taxes reduced by 50%, to $338 a year, according to analysis from RESET Louisiana, a nonpartisan public policy think tank.
However, the state's sales tax will jump to 5% in 2025, up from its prior 4.45% rate, partly to pay for the income tax cut, 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.
That might not be the last tax reduction for Mississippi residents, as Gov. Tate Reeves is pushing to entirely phase out the state's individual income tax, arguing that the move would help it to compete with Florida and other states without income taxes.
"And if we want to continue to see the kind of economic development successes that we've had, we've got to be competitive from a tax standpoint," Reeves said in November.
Missouri
Another state with a Republican-controlled legislature and Republican governor, MIssouri will trim its state income tax to 4.7% on Jan. 1 from 4.8% in 2024.
The cut is the fifth income tax reduction under Gov. Mike Parson, who in announcing the cut earlier this year touted the state's economy, which he said added 70,000 jobs in 2024 and ranks "first in the nation for job growth."
Nebraska
Nebraska residents will see their income tax rate decline to 5.2% on Jan. 1, down from 5.84% in 2024, the Tax Foundation said. The Republican Party controls the state legislature, while the state's governor is also a member of the GOP.
New Mexico
New Mexico represents the only state with an income tax reduction on Jan. 1 that sports a Democratic trifecta, meaning its legislature is controlled by the party, while its governor, Michelle Lujan Grisham, is also a Democrat.
Starting on Jan. 1, New Mexico's individual income tax brackets will be reduced for all residents, with the biggest cuts aimed at low- and middle-income taxpayers, the Tax Foundation noted. 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, versus five in 2024, with rates ranging from 1.5% to 5.9%. Some tax rates will remain the same, but others will change. For instance, the lowest bracket was 1.7% in 2024, according to local publication SourceNM.
North Carolina
North Carolina, whose legislature is controlled by the Republican Party while its governor is a Democrat, will cut its tax rate to 4.5% on Jan. 1, down from 4.75% in 2024.
That's not the last reduction, as the individual tax rate will once again drop in 2026, to 3.99%, according to the High Point Enterprise.
West Virginia
West Virginia residents will see their income taxes reduced by about 4% after the state, with a Republican-controlled legislature and Republican governor, booked an annual revenue surplus.
The top tax rate will be reduced from from 5.12% in 2024 to 4.82% on Jan. 1, according to the Tax Foundation. Gov. Jim Justice has also pushed for steeper reductions, noting in July, that "we need to continue marching toward eliminating the personal income tax."
