State Tax Changes and Taxpayers Will Get a Break. 39 states will start 2025 with significant tax changes, including three states that will lower corporate income taxes, two that will adopt new first-year expensing provisions and nine that will lower individual income taxes (two of which will implement flat taxes). Major tax rate changes are usually implemented on January 1st, either prospectively, as in these cases, or retroactively, as may occur under legislation enacted in the new year. State tax changes generally take effect either on January 1st, which is the beginning of the calendar year or on July 1st, which is the beginning of the fiscal year for most states.
The 2025 adjustments demonstrate that the substantial tax reforms that have been implemented in recent years have not slowed down. The data from the last four years shows that many states recognize the advantages of establishing and preserving a stable, pro-growth, and competitive tax structure.
According to an analysis by the Tax Foundation, a tax-focused think tank, nine states are beginning 2025 with lower individual income tax rates, which might provide some Americans with a tax break this year.
According to Tax Foundation research, these are the states where income taxes will be reduced beginning on January 1, 2025.
Indiana
Indiana, a state with a Republican governor, Eric Holcomb, and a GOP-controlled state legislature will lower its income tax rate from 3.05% in 2024 to 3% in 2025.
Iowa
Iowa is reducing its individual income tax rate from a highest tax rate of 5.7% in 2024 to a flat rate of 3.8% beginning January 1, according to the Des Moines Register. The statehouse and governor’s office are controlled by a Republican trifecta.
Louisiana
Louisiana, another state where Republicans hold both the governor’s office and the statehouse, is reducing its individual income tax rate from a progressive tax with a high rate of 4.25% in 2024 to a flat rate of 3% beginning on January 1.
Mississippi
Mississippi, which has a Republican governor and legislature as well, will lower its individual income tax rate from 4.7% in 2024 to 4.4% on January 1.
Because Mississippi Governor Tate Reeves is working to phase out the state’s individual income tax completely, claiming that it would help the state compete with Florida and other states that do not impose income taxes, that may not be the last tax cut for people of Mississippi.
Missouri
Missouri, another state with a Republican-controlled legislature and governor, will lower its state income tax from 4.8% in 2024 to 4.7% on January 1.
Nebraska
According to the Tax Foundation, the income tax rate for Nebraskans will drop from 5.84% in 2024 to 5.2% on January 1. The governor of the state is a Republican, and the GOP also controls the state legislature.
New Mexico
The only state with a Jan. 1 income tax cut that has a Democratic trifecta—that is, a Democratic-controlled legislature and a Democratic governor, Michelle Lujan Grisham—is New Mexico.