These States Are Cutting Taxes in 2025

February 13, 2025 — Good news is coming to 8 states this year when it comes to income taxes. It is part of a trend to lower taxes, make themselves more competitive, and enjoy the surpluses many of them experienced from the Covid years. Others, though, are concerned that the lower taxes will result in the cutting of public services. Seven of the 8 states that lowered their rates are controlled by Republicans.

Most of the reductions were relatively minor, usually less than a half a percentage point. Two of the states have moved to a flat tax instead of income brackets.

8 States Lowered Their Income Taxes in 2025

Indiana. The Hoosier State made a minor change in its income tax rate in 2025, shaving it to 3% from 3.05% in 2024.

Iowa is moving to a flat rate of 3.8% starting Jan. 1. In 2024 the top tax rate was 5.7%. Flat taxes benefit wealthy taxpayers more than lower earners.

Louisiana. This state is also moving its individual income tax rate to a flat rate of 3% starting Jan. 1. That’s down from a graduated tax with a top rate of 4.25% in 2024. The biggest savings are to be for the big group that earns between $30,000 to $40,000. The state’s sales tax, however, will climb to 5% in 2025, up from the previous 4.45% rate.

Mississippi, controlled by a Republican legislature and governor, will cut its individual income tax rate to 4.4% in 2025, lowered from 4.7% in 2024. Republican Governor Tate Reeves would like to completely phase out the State’s income tax in order to be competitive with other states.

MIssouri. Will shave a whisker off its state income tax, going to 4.7% on Jan. 1 from 4.8%. The State claims that it ranks “first in the nation for job growth, ” and would like to continue that.

Nebraska residents will get one the biggest reductions in their income tax rate, knocking it down to 5.2% from 5.84% in 2024, according to the Tax Foundation.

New Mexico. Effective Jan. 1, all residents in New Mexico’s will see individual income tax brackets reduced. The biggest cuts are targeted for low- and middle-income taxpayers. The state will now have six brackets, with rates ranging from 1.5% to 5.9%. Previously there were 5. New Mexico is controlled by the Democrats.

West Virginia. The top tax rate will be reduced to 4.82% vs. 5.12% in 2024.

8 States Don’t Have Income Taxes

The list of states with no state income tax has steadily climbed, and is now up to 8. They are: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming. New Hampshire doesn’t tax income, but it does so on interest and dividends, at least until 2027. Tennessee phased out its taxation of interest and dividends in 2021.

Taxation of Social Security

Since Social Security is a big part of most people’s retirements, knowing how your state taxes that portion is important. As of 2025 there are 9 states that tax it, in all sorts of ways (some less onerous than others). See These States Tax Social Security Income.