Nine states rang in the new year by reducing their individual income tax rates, according to an analysis by the Tax Foundation.
Indiana, Iowa, Louisiana, Mississippi, Missouri, Nebraska, New Mexico, North Carolina, and West Virginia cut individual income tax rates on Jan. 1, with South Carolina making a temporary reduction permanent, with further cuts on the way, according to the Tax Foundation, a Washington, D.C-based think tank dedicated to studying tax policy at all levels.
Iowa and Louisiana will transition to single-rate income taxes, continuing a recent trend of states adopting flat income taxes. New Hampshire’s tax on interest and dividends income has been repealed, and Hawaii, a state that does not automatically index its brackets to inflation, will substantially widen bracket widths in 2025, exposing more income to lower marginal rates, the Tax Foundation said.
The following chart shows the top marginal tax rates for 2024 and now for 2025 in eight of the nine states:
| States | 2024 | 2025 |
| Indiana | 3.05% | 3.00% |
| Iowa | 5.70% | 3.80% |
| Louisiana | 4.25% | 3.00% |
| Mississippi | 4.70% | 4.40% |
| Missouri | 4.80% | 4.70% |
| Nebraska | 5.84% | 5.20% |
| North Carolina | 4.75% | 4.50% |
| West Virginia | 5.12% | 4.82% |
Effective Jan. 1, New Mexico restructured its individual income tax brackets to reduce taxes for all taxpayers, with reductions targeted at the low- and middle-income levels, the Tax Foundation said. A new sixth bracket with a 4.3% rate was added, applying to filers who earn between $16,500 and $33,500 on an individual basis and between $25,000 to $50,000 jointly.
Seven of the states that are lowering their individual income taxes in 2025—Indiana, Iowa, Louisiana, Mississippi, Missouri, Nebraska, and West Virginia—have legislatures that are controlled by Republicans, as well as Republican governors, according to CBS News.
“Recent years have seen a wave of significant tax reforms, and the changes scheduled for 2025 show that these efforts have not let up,” the Tax Foundation said. “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.”
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Tags: Income Tax, State and Local Taxes, Taxes
