Eleven states have lowered their personal income tax rates for the 2023 tax year, the one for which returns are due in spring 2024.
Meanwhile, one state raised its tax rate for residents earning more than $1 million a year, according to a recent report from the Tax Foundation.
Here’s the rundown of states that lowered their personal income tax rates for 2023 — with a few reducing rates even more for tax years to come — and the state that raised the tax rate for “millionaire” earners.
Arizona’s personal income tax rates of 2.55% and 2.98% were converted to a flat tax rate of 2.5% for the 2023 tax year.
Arizona’s new flat tax rate is the lowest in the country, and the recent changes reduce the average Arizona taxpayer’s tax liability by 13%, resulting in individual tax savings of around $340, according to a statement issued in 2022 by former Arizona Gov. Doug Ducey.
Effective Jan. 1, 2023, Iowa consolidated its nine individual income tax rates into four, reducing the top tax rate (for taxpayers earning more than $75,000 a year) from 8.53% to 6%. Under the new law, residents earning $30,001 to $75,000 will be taxed at 5.7% for the 2023 tax year.
Iowa will levy a state income tax of 4.82% on taxpayers earning $6,001 to $30,000 and 4.4% on those earning up to $6,000 a year in tax year 2023.
Income tax rates will continue to decrease each year for some income brackets, with all brackets paying a flat individual income tax rate of 3.90% by tax year 2026.
Idaho converted its 6% individual income tax to a new, flat tax rate of 5.8%, effective Jan. 3, 2023, according to the Idaho Capital Sun. The new tax legislation also exempts the first $2,500 of income for all filers.
In 2022, Indiana passed legislation that lowers the state’s flat individual income tax rate from 3.23% to 3.15% for tax years 2023 and 2024. That rate could be lowered even more for subsequent tax years — eventually as low as 2.9% — if the amount of Indiana revenue collections meets growth targets.
For the 2023 tax year, Kentucky reduced its individual income tax from 5% to 4.5%. And the personal income tax rates for 2024 will be even lower — dropping to 4% — due to Kentucky Gov. Andy Beshear signing House Bill 1 into law in February 2023.
According to the Tax Foundation report, “The law also established tax triggers that, contingent upon revenue meeting certain benchmarks, could phase down the individual income tax rate to zero over many years …”
Mississippi enacted legislation in 2022 moving the state to a flat income tax structure that levies a 5% rate on taxpayers earning more than $10,000 a year, beginning with the 2023 tax year.
The new rate eliminates the previous tax rate of 4% on taxpayers earning between $5,000 and $10,000, leaving one tax rate of 5% for taxpayers earning more than $10,000 a year.
In 2024, Mississippi will lower the tax rate to 4.7%, reducing the rate again in 2025 to 4.4%. In 2026, the tax rate will be 4%.
Missouri taxpayers will benefit in 2023 and tax years to come, thanks to legislation signed into law in 2022, resulting in Missouri’s largest individual income tax cut in the state’s history.
The new legislation reduces the top individual income tax from 5.2% to 4.95%, which means many taxpayers will see an approximate 5% decrease in their tax liability, according to a press release from the office of Missouri Gov. Mike Parson.
Additionally, the new tax legislation exempts Missouri taxpayers from personal income tax on the first $1,000 earned.
Beginning with tax year 2023, Nebraska is reducing its personal income tax from 6.84% to 6.64% and will further reduce the state tax rate gradually each tax year to a rate of 5.84% by 2027. There’s more good news for taxpayers receiving Social Security benefits, too.
Nebraska taxpayers can deduct 60% of Social Security benefits included in federal adjusted gross income (AGI) for tax year 2023, an increase from the 40% deduction allowed in 2022. Tax years 2024 and 2025 are even better, with 80% and 100% Social Security benefit deductions allowed, respectively.
New Hampshire doesn’t levy an individual income tax on earnings, but taxpayers pay a 5% state tax on income from dividends and interest. However, the state passed legislation in 2021 that gradually phased out the dividends and interest (DI) tax, beginning with a decrease to 4% for tax periods ending on or after Dec. 31, 2023.
After 2023, the dividends and interest tax will decrease by 1% each subsequent tax year, eventually eliminating the DI tax altogether for tax periods beginning after Dec. 31, 2026.
New York’s personal income tax reductions scheduled for 2025 arrive two years early, with lower 2023 tax rates for single filers who earn $13,900 a year and higher.
For the 2023 tax year and before 2028, the income tax rates of 5.85% and 6.25% are reduced for middle-income filers earning between:
- $13,900 and $80,650 ($27,900 and $161,550 for joint filers): $600 plus 5.5% of excess over $13,900 for single filers or $1,202 plus 5.5% of excess over $27,900 for joint filers
- $80,650 and $215,400 ($161,500 and $323,200 for joint filers): $4,271 plus 6% of excess over $80,650 for single filers or $8,553 plus 6% of excess over $161,550 for joint filers
North Carolina reduced its 2022 personal income tax rate from 4.99% to 4.75% for the 2023 tax year. And that decrease won’t be the last tax cut for North Carolina taxpayers. The individual income tax rate will decrease even further, eventually dropping to 3.99% for tax year 2027.
Massachusetts is raising individual income taxes in 2023. Most taxpayers won’t be affected by the increase, however. The tax hike adds a 4% surtax on top of the previous tax rate of 5% — but only for Massachusetts taxpayers earning more than $1 million a year.
Dubbed “the millionaire’s tax,” 52% of voters favored the tax bill, which passed with the November 2022 election. The state will adjust the $1 million threshold each year for cost-of-living increases, according to NBC TV news station 10 Boston.
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