2025 Tax Breaks: Discover the 9 States Slashing Income Taxes!
While the old adage says “nothing is certain but death and taxes,” there’s good news on the tax front: lots of Americans will be paying less in taxes come 2025! Nine states are set to lower their state income taxes, as highlighted in an insightful roundup from a prominent tax policy research organization.
Among these states, both Iowa and Louisiana are shaking things up by not only reducing their top marginal tax rates but also transitioning to a flat-tax system. Plus, South Carolina — which isn’t on the list of tax-cutting states — has made a temporary income tax cut a permanent fixture and is on a mission to gradually lower its top marginal rate even further.
The organization emphasizes that these changes are just a glimpse of the significant state tax code shifts happening in 2025. A total of 39 states are adjusting their tax codes, including nine states implementing reductions in individual tax rates. The burning question, however, is what lies ahead for federal income taxes. For the moment, federal income taxes remain stable, but the individual tax cuts from the 2017 Tax Cuts and Jobs Act are set to expire at the end of the year unless Congress steps in.
So, which nine states are slashing income taxes in 2025? Let’s break it down:
Indiana
Indiana is trimming its flat tax rate from 3.05% to a sleek 3%.
Iowa
Say goodbye to brackets! Iowa is switching from a tiered tax system with a top rate of 5.7% to a straightforward flat rate of 3.8%. But who benefits from a flat tax? It’s a mixed bag. Proponents argue that it simplifies the tax structure and is fairer, while critics contend that it doesn’t help lower-income families, especially if states hike other taxes, like sales taxes, to compensate for the lost income tax revenue.
Louisiana
Louisiana is following suit by replacing a bracket system with a peak rate of 4.25% with a flat tax of 3%.
Mississippi
Mississippi is reducing its flat income tax rate from 4.7% to 4.4%.
Missouri
Missouri is cutting its top marginal income tax rate from 4.8% to 4.7%.
Nebraska
Nebraska is dropping its top marginal rate from 5.84% to 5.2%.
New Mexico
New Mexico is actually adding a new bracket to its tax structure, increasing from five to six. The top rate remains at 5.9%, but with changes designed to lower taxes for low- and middle-income families. According to the governor’s office, a couple making $50,000 a year could see savings of over $300.
North Carolina
North Carolina is bringing its tax rate down from 4.75% to 4.5%.
West Virginia
West Virginia is slashing its top tax bracket from 5.12% to 4.82%.
Income Taxes: A State-by-State Rollercoaster
Income tax rates vary significantly across the country. The highest marginal rates range from a mere 2.5% in North Dakota to a staggering 13.3% in California. And did you know there are currently nine states that don’t levy any individual income tax? That’s right: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming are tax-free zones for income tax.
But before you start dreaming of moving to a no-income-tax state, keep in mind that those states may make up for the lack of income tax with higher sales or property taxes. The organization also takes a comprehensive approach to evaluate state tax friendliness, considering a variety of metrics.
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