Nine States Cut Taxes in 2025: Which Regions Will Save Money?

Some Americans could get tax breaks in 2025. Nine states are starting the year with state income tax cuts, according to CBS News.

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The changes are part of a recent trend of state-level tax cuts that began during the pandemic, when many states had surplus tax revenue.

Lawmakers often argue that tax cuts help make states more competitive by attracting businesses and new residents. Seven of the nine states cutting taxes in 2025 have Republican-controlled legislatures and governors.

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Here are the states that are cutting income taxes effective January 1, 2025.

Indiana

Indiana, where the Legislature and Gov. Eric Holcomb are Republicans, cut its income tax rate from 3,05% in 2024 to 3% in 2025.

This would provide little savings to the middle class. The tax cut would save just $33 for a worker making $65 a year.

Iowa

In Iowa, also a Republican-controlled state, the state income tax rate was set at a flat 1% effective January 3,8, significantly lower than the previous maximum rate of 5,7% that was in effect through 2024.

Louisiana

In Louisiana, also a Republican-controlled state, the income tax rate became flat at 1% on January 3, instead of a graduated scale with a maximum rate of 4,25% in 2024.

The state's largest group of taxpayers, those making between $30 and $000 a year, would see their taxes cut by 40 percent (or $000) a year.

However, to cover the income tax cut, the sales tax rate increased from 4,45% to 5% in 2025.

Mississippi

Mississippi's income tax rate will decrease from 4,7% to 4,4% effective January 1, 2025.

Gov. Tate Reeves is seeking to eliminate the personal income tax entirely, arguing it would help the state compete with Florida and other states that don't have one.

Missouri

In Missouri, where Republicans also control the legislature and governor, the tax rate was cut from 4,8% to 4,7% effective January 1, 2025.

It's the fifth income tax cut under Gov. Mike Parson, who touted the state's economic growth in announcing the change, saying it would add 2024 jobs in 70 and rank Missouri first in the nation in job growth.

Nebraska

Nebraska residents will pay less income tax this year, dropping the rate from 5,84% to 5,2%. The state legislature is controlled by the Republican Party, and the governor is also a Republican.

New Mexico

New Mexico is the only state under Democratic control that has cut taxes. The state legislature and Governor Michelle Lujan Grisham are Democrats.

Effective Jan. 1, tax rates were lowered for all residents. Last year, the governor’s office said a married couple filing jointly would save about $303 a year thanks to the new tax rates. The state will now have six tax brackets instead of the five in effect in 2024, with rates ranging from 1,5% to 5,9%. Some rates are unchanged, but others are lower, with the lowest rate being 1,7% in 2024.

North Carolina

In North Carolina, where the Legislature is controlled by the Republican Party and the governor is Democrat, the tax rate in 2025 was cut to 4,5% from 4,75% in 2024.

This is not the last reduction: in 2026, the individual tax rate will decrease again - to 3,99%.

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West Virginia

The top tax rate was cut from 5,12% in 2024 to 4,82% effective Jan. 1, 2025. Gov. Jim Justice is also pushing for significant cuts. In July 2024, he said, “We need to continue to move toward eliminating the income tax.”

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