Big changes in your taxes: Discover the 9 states where your paycheck will get bigger starting January 1
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As the New Year rings in, it's not just about resolutions and fresh starts—it's also about more money in the pockets of taxpayers in nine states across the United States.
Starting January 1, 2025, a select group of states are implementing income tax cuts, a move that could have a significant impact on your finances.
Managing your money wisely is more important than ever, especially in our golden years. So, let's explore which states are giving their residents a financial break and what it could mean for you.
The Tax Foundation, a leading think tank on tax policy, has analyzed these upcoming changes. This trend reflects a broader push for tax reduction at the state level, which gained momentum as many states reported surpluses in tax revenue.
However, the Institute on Taxation and Economic Policy (ITEP) warns that this “anti-tax playbook” could potentially strain public services in the future.
Despite these concerns, lawmakers champion these tax cuts as a strategy to boost their state's competitiveness, attract businesses, and encourage new residents to move in.
"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 remarked regarding the 2025 changes.
Let's take a closer look at the states where you might see a little extra on your paycheck or pension starting on January 1, 2025:
1. Indiana
The Hoosier State is trimming its income tax rate from 3.05% to 3%. While the savings might seem modest, every penny counts. For a worker earning $65,000 a year, this could mean an extra $33 in their pocket.
2. Iowa
Iowa is making a more significant change by introducing a flat tax rate of 3.8%, down from a top rate of 5.7%. This could mean considerable savings for many residents, signed into law by Governor Kim Reynolds last May 2024.
3. Louisiana
Louisiana is also adopting a flat tax rate of 3%, a drop from a graduated system with a top rate of 4.25%. Middle-income earners could see their state taxes halved to $338 annually.
Although it's worth noting that the state's sales tax will increase to compensate for the income tax cut, according to the Tax Foundation.
4. Mississippi
Mississippians will enjoy a reduction to 4.4% from 4.7%. Furthermore, Governor Tate Reeves has ambitions to phase out the state's income tax entirely, aiming to rival states like Florida that have no income tax.
5. Missouri
Missouri is cutting its tax rate to 4.7% from 4.8%. This is the fifth reduction under Governor Mike Parson, who has highlighted Missouri's strong job growth as a rationale for the cut. He says that “this has added 70,000 jobs in 2024 and ranks first in the nation for job growth.”
6. Nebraska
Nebraskans will see their rate drop from 5.84% to 5.2%. This cut is part of a broader effort by the state's leadership to reduce the tax burden on residents.
7. New Mexico
The Land of Enchantment is restructuring its tax brackets to benefit all residents, especially those with lower and middle incomes, with a married couple filing jointly projected to save about $303 annually.
The state is said to now have six brackets compared to its original five in 2024. Ranges will be from 1.5% to 5.9%. While some tax rates remained the same, others have changed–with the lowest bracket being 0.2% lower than last year’s 1.7%.
8. North Carolina
North Carolina will reduce its rate to 4.5% from 4.75%, with another cut planned for 2026. That's not the last reduction, as the individual tax rate will once again drop in 2026, to 3.99%, as per the High Point Enterprise.
9. West Virginia
Finally, the Mountain State will lower its top tax rate from 5.12% to 4.82%. Governor Jim Justice has also expressed a desire to continue working towards eliminating the personal income tax altogether.
If you're a resident of one of these nine states, you might be wondering how these changes will affect your budget.
As you adjust your financial planning for 2025, consider consulting with a tax professional to understand the full impact of these changes on your personal finances.
There are big changes coming for American taxes. You might be part of those who may pay little to no taxes in 2025, which you can find out about in this story here.
Are you living in one of the states that will see these tax cuts? How do you plan to use the extra funds? Do you have concerns about potential reductions in public services? Share your thoughts and experiences in the comments below!
Starting January 1, 2025, a select group of states are implementing income tax cuts, a move that could have a significant impact on your finances.
Managing your money wisely is more important than ever, especially in our golden years. So, let's explore which states are giving their residents a financial break and what it could mean for you.
The Tax Foundation, a leading think tank on tax policy, has analyzed these upcoming changes. This trend reflects a broader push for tax reduction at the state level, which gained momentum as many states reported surpluses in tax revenue.
However, the Institute on Taxation and Economic Policy (ITEP) warns that this “anti-tax playbook” could potentially strain public services in the future.
Despite these concerns, lawmakers champion these tax cuts as a strategy to boost their state's competitiveness, attract businesses, and encourage new residents to move in.
"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 remarked regarding the 2025 changes.
Nine states in the US will be reducing individual income tax rates starting January 1, 2025, amid a trend for state-level tax cuts. Image source: Pexels / Kaboom Pics.
Let's take a closer look at the states where you might see a little extra on your paycheck or pension starting on January 1, 2025:
1. Indiana
The Hoosier State is trimming its income tax rate from 3.05% to 3%. While the savings might seem modest, every penny counts. For a worker earning $65,000 a year, this could mean an extra $33 in their pocket.
2. Iowa
Iowa is making a more significant change by introducing a flat tax rate of 3.8%, down from a top rate of 5.7%. This could mean considerable savings for many residents, signed into law by Governor Kim Reynolds last May 2024.
3. Louisiana
Louisiana is also adopting a flat tax rate of 3%, a drop from a graduated system with a top rate of 4.25%. Middle-income earners could see their state taxes halved to $338 annually.
Although it's worth noting that the state's sales tax will increase to compensate for the income tax cut, according to the Tax Foundation.
4. Mississippi
Mississippians will enjoy a reduction to 4.4% from 4.7%. Furthermore, Governor Tate Reeves has ambitions to phase out the state's income tax entirely, aiming to rival states like Florida that have no income tax.
5. Missouri
Missouri is cutting its tax rate to 4.7% from 4.8%. This is the fifth reduction under Governor Mike Parson, who has highlighted Missouri's strong job growth as a rationale for the cut. He says that “this has added 70,000 jobs in 2024 and ranks first in the nation for job growth.”
6. Nebraska
Nebraskans will see their rate drop from 5.84% to 5.2%. This cut is part of a broader effort by the state's leadership to reduce the tax burden on residents.
7. New Mexico
The Land of Enchantment is restructuring its tax brackets to benefit all residents, especially those with lower and middle incomes, with a married couple filing jointly projected to save about $303 annually.
The state is said to now have six brackets compared to its original five in 2024. Ranges will be from 1.5% to 5.9%. While some tax rates remained the same, others have changed–with the lowest bracket being 0.2% lower than last year’s 1.7%.
8. North Carolina
North Carolina will reduce its rate to 4.5% from 4.75%, with another cut planned for 2026. That's not the last reduction, as the individual tax rate will once again drop in 2026, to 3.99%, as per the High Point Enterprise.
9. West Virginia
Finally, the Mountain State will lower its top tax rate from 5.12% to 4.82%. Governor Jim Justice has also expressed a desire to continue working towards eliminating the personal income tax altogether.
If you're a resident of one of these nine states, you might be wondering how these changes will affect your budget.
As you adjust your financial planning for 2025, consider consulting with a tax professional to understand the full impact of these changes on your personal finances.
There are big changes coming for American taxes. You might be part of those who may pay little to no taxes in 2025, which you can find out about in this story here.
Are you living in one of the states that will see these tax cuts? How do you plan to use the extra funds? Do you have concerns about potential reductions in public services? Share your thoughts and experiences in the comments below!
