Many Americans will see their federal income taxes fall this year due to provisions of the One Big Beautiful Bill Act, which President Trump signed into law in July. But residents of some states also stand to see their state income taxes fall.
According to the nonprofit Tax Foundation, eight states enacted income tax cuts or expanded tax breaks for 2026 — reflecting a broader trend of moving toward flatter, lower tax structures.
Here are the eight states where individual income tax rates dropped on Jan. 1. Note that these changes are for the 2026 tax year, the one for which returns are due by spring 2027.
Indiana
Hoosiers will see their tax burden lighten a smidgen this year. Indiana has reduced its flat income tax rate from 3% to 2.95%. This continues a multi-year effort to gradually ratchet down rates.
Kentucky
Kentucky has dropped its flat rate from 4% to 3.5%. This reduction was triggered by revenue benchmarks met in 2025, per a plan originally adopted in 2022.
Mississippi
The Magnolia State continues its gradual reduction of the income tax rate, with its top marginal rate now 4%, down from 4.4%. This keeps the state on track with its long-term legislative goal of easing the tax burden on workers.
Montana
Montana’s top marginal income tax rate has fallen from 5.9% to 5.65% as part of a law created last year. It will fall again, to 5.4%, in 2027.
The income bracket for Montana’s lower tax rate also has been expanded, effectively making it so that more taxpayers qualify for that rate.
The state’s earned income tax credit is also now more valuable, worth 20% of the federal earned income tax credit instead of 10%. To learn more about the federal version, see “3 Tax Credits That Will Be More Generous Next Year — and 4 That Won’t.”
New York
New York’s child tax credit is now more valuable, worth up to $1,000 per child up to age 3 and $500 per child aged 4 through 16. This is a temporary change, though, only effective for the 2026 and 2027 tax years.
Other changes in the state stemming from last year’s budget bill include extension of temporary surtaxes on high-earning taxpayers.
Nebraska
In the Cornhusker State, the top individual income tax rate fell from 5.2% to 4.55% this year, the latest step in a gradual reduction that will lower this rate to 3.99% in 2027.
North Carolina
North Carolina has reduced its flat income tax rate from 4.25% to 3.99% as part of a gradual reduction plan.
Ohio
As of Jan. 1, Ohio has transitioned to a flat-rate income tax system, a change that was part of the state’s main budget bill. This makes it one of 15 states with flat rates.
The new rate is 2.75%—down from the previous top marginal rate of 3.125%—though eligibility for certain tax breaks has been tightened for high earners.
Oklahoma
Oklahoma taxpayers will navigate a simpler system in 2026, thanks to House Bill 2764 becoming law. It consolidated the state’s six income tax brackets into just three, which now have tax rates of 2.5%, 3.5% and 4.5%. The top marginal rate is down from 4.75%.
The new law also established triggers that could further reduce rates by another 0.25 percentage point at a time in future years if revenue targets are met.
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