January 10, 2026, 5:04 a.m. ET
Some Americans can kick off the new year with the possibility of receiving an income tax break. Interestingly, these cuts are coming from various states rather than the federal government. As of January 1, eight states have reduced their income tax rates, according to a nonprofit think tank.
Experts suggest that by putting more money in residents’ pockets, these states aim to drive economic growth, attract workers, businesses, and investments.
The Tax Foundation noted that these reductions reflect states’ ongoing commitment to reforms that enhance competitiveness and promote long-term economic growth.
Which states are lowering their income tax rates?
The following states have implemented lower tax rates:
- Indiana: The flat income tax rate is set to decrease from 3% last year to 2.95%. Additionally, on January 1, 2027, it will drop further to 2.9%. A law instituted last year allows for gradual reductions to a possible 2.55% in even-numbered years starting in 2030, contingent on meeting specific income thresholds.
- Kentucky: The flat income tax rate has been lowered from 4% to 3.5%.
- Mississippi: As part of a planned multi-year reduction, the final cut will bring the flat rate from 4.4% to 4%.
- Montana: The maximum marginal interest rate will decline from 5.9% to 5.65%, with further reductions to 5.4% in 2027. While the floor rate of 4.7% will remain, its range will expand.
- Nebraska: The top rate is dropping from 5.2% to 4.55%, as part of a gradual plan to reduce it to 3.99% by 2027.
- North Carolina: The flat income tax rate will decrease from 4.25% to 3.99%, marking the final reduction in a multi-year tax cut initiative.
- Ohio: Income exceeding $26,050 will see a rate drop from 3.125% to a flat 2.75%, with no tax on income below that threshold.
- Oklahoma: The top rate will slide from 4.75% to 4.5%, while the number of individual income tax brackets will decrease from six to three.
