Nothing is certain but death and taxes, as the saying goes, but some Americans will be paying less taxes in 2025. Residents of nine states will see their state income taxes go down in this year, according to a roundup from the Tax Foundation, a tax policy research and analysis nonprofit.
The organization notes that two of those states — Iowa and Louisiana — not only lowered the top marginal tax rate, but shifted from a bracket to a flat-tax system. In addition, South Carolina — although not one of the nine states with a new tax cut — made a temporary income tax cut permanent, and is undertaking an incremental process to lower its top marginal rate further.
The Tax Foundation says these are just a few of the major state tax code changes coming in 2025. In total, 39 states are changing some part of their tax codes this year, including the provisions to lower individual tax rates in nine states. The biggest question is what will happen to federal income taxes after this year. While federal income taxes will hold steady for now, the individual tax cut changes implemented as part of the 2017 Tax Cuts and Jobs Act are set to sunset at the end of this year unless Congress acts.
Here are the nine states cutting income taxes in 2025:
Indiana
Indiana lowered its 3.05% flat tax to 3%.
Iowa
Iowa shifted from a bracket-based tax system with a top marginal rate of 5.7% to a flat 3.8% tax rate. Who does a flat tax rate help? It depends who you ask. The Tax Foundation argues that flat state income tax structures are simpler and have advantages over systems with graduated rates, which raise the percentage of income tax owed on higher earners. Some flat tax opponents, though, argue that lower-income families don’t benefit from flat-rate taxes, in part because state may raise other taxes, like the sales tax, to offset a drop in income-tax revenue.
Louisiana
Louisiana is also replacing brackets that top out at 4.25% with a 3% flat tax.
Mississippi
Mississippi is lowering its flat income tax to from 4.7% to 4.4%.
Missouri
Missouri lowered its top marginal income tax rate from 4.8% to 4.7%.
Nebraska
Nebraska dropped its top marginal tax rate from 5.84% to 5.2%.
New Mexico
New Mexico actually added a bracket to its income-tax system, bringing the number of marginal brackets from five to six. The highest rate still tops out at 5.9%, but the income brackets were changed, with a focus on delivering lower taxes to low- and middle-income residents. According to the governor’s office, a couple with a joint income of $50,000 a year could save more than $300.
North Carolina
North Carolina lowered its 4.75% tax rate to 4.5%.
West Virginia
West Virginia reduced its top marginal bracket from 5.12% to 4.82%.
Income taxes vary widely by state
How much residents pay in income taxes varies dramatically from state to state. Top marginal rates range from North Dakota’s 2.5% to California’s 13.3%. There are currently nine states that levy no individual income tax: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming.
While not paying any state income tax might sound appealing, the Tax Foundation points out that some states compensate for this by having high taxes in other areas, such as high sales tax or property tax. The Tax Foundation also takes a holistic look at states’ tax-friendliness with an analysis that incorporates these metrics.
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According to a recent report from Money.com, nine states will be implementing income tax cuts in 2025. These states include Indiana, Iowa, Louisiana, Mississippi, Missouri, Nebraska, New Mexico, North Carolina, and West Virginia. The Tax Foundation, a tax policy research and analysis nonprofit, notes that these changes are just a few of the many state tax code changes happening this year. In total, 39 states are making adjustments to their tax codes, with nine of them specifically lowering individual tax rates. However, the biggest question remains about what will happen to federal income taxes after this year. While they will remain the same for now, the individual tax cuts implemented in 2017 are set to expire at the end of this year unless Congress takes action. It is important to note that income taxes vary greatly by state, with some states opting for a flat tax rate system while others have a graduated rate structure. The changes in these nine states are expected to benefit low- and middle-income residents, but opinions on flat tax rates remain divided.
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