These 11 States Are Reducing Income Tax Rates This Year
As W2's begin to hit mailboxes across the U.S., residents of a few states may see they owe less income tax than last year as 11 states are putting more money into some American's pockets as they grapple with stubbornly high inflation during the current economic uncertainty.
"We are seeing the culmination of two years of substantial tax cutting across the country, in response to historically high revenues and a desire for states to remain competitive in a much more mobile environment," says Jared Walczak, the vice president of state projects at the Tax Foundation.
At least 11 states, a majority led by Republicans, have reduced state income tax rates for residents in some form this year, according to the nonpartisan Tax Foundation, a group that lobbies for lower taxes.
Five states, including Arkansas, Iowa, Nebraska, New Hampshire and Pennsylvania, will implement additional corporate income tax reductions.
According to Bankrate, the cuts are coming at a time of high inflation and economic uncertainty, with a reported 69% of Americans fearing a possible recession by the end or 2023.
Here's a closer look at the states reducing their income taxes:
Arizona has adopted a flat tax plan that eliminates its old graduated income tax scale, which began at 2.59% and had a maximum tax of 4.5% for income over $159,000 a year for individuals. All taxpayers in the state will now pay a maximum rate of 2.5%.
"This tax relive keeps Arizona competitive and preserves our reputation as a jobs magnet and generator of opportunity," former Arizona Gov. Doug Ducey, a Republican, said in a statement in September.
The top individual income tax rate in Arkansas was cut to 4.9% from the previous high of 5.9%.
The change, which is retroactive to 2022, accelerates rate reductions that originally were scheduled to begin in the 2025 tax year.
Idaho adopted a flat individual income tax rate of 5.8% that will go into effect this year. That compares to the previous maximum rate of 6%
The state's flat individual income tax rate has been reduced from 3.15% from 3.25%, effective for for 2023 and 2024. There are certain triggers in place that could further reduce the rate to 2.9% if specified conditions are met.
Iowa will start phasing in a 3.9% flat tax this year, although the change takes effect over four years, so some residents will see benefits sooner than others.
The $1.9 billion tax cut - signed into law last year by Republican Gov. Kim Reynolds - also eliminates taxes on retirement income and lowers taxes for corporations.
"With this bill, Iowa is now the fourth lowest for individual income tax rates in the nation" Reynolds said in a statement. "There's never been a better time in Iowa for bold, sustainable tax reform."
Kansans looking to save some money on household necessities this year are in luck: The state implemented the first phase of a plan to eliminate taxes on food. As of Jan 1, the state's food tax was reduced to 4% instead of 6.5%.
The tax rate will continue to decline until it hits zero in 2025.
Beginning in january, kentucky reduced the individual income tax rate while broadening its sales tax base. The individual income tax rate fell to 4.5% from 5%, but sales tax will now be applied to a number of new services including car rental, ride-sharing and taxi services. On top of that, a 6% excise tax will be applied in lieu of the general sales tax.
Republican Gov. Mike Parson signed itno law last year a projected $760 million tax cut, which he lauled as the "the largest tax cut in the state's history."
Under the new tax law, Missouri's top individual income tax rate fell to 4.95% in January from the previous rate of 5.3%. (The tax rate was already slated to drop to 5.2% this year.)
On top of that, the first $1,000 of income is now exempt from taxation.
Mississippi is converting to a flat tax system, effective January. A 4% tax on taxable income between $5,000 and $10,000 has been eliminated; in its place is a single rate of 5% on income exceeding $10,000.
The tax rate will from to 4.7% in 2024, 4.4% in 2025 and 4% in 2026.
New York accelerated income tax rate reductions for middle-class families, with rate reductions originally planned for 2025 now scheduled to take effect this year.
The tax rate on income between $13,900 and $80,650 for single filers will drop to 5.5%. For individual filers earning between $80, 650 and $215,400, the tax rate is dropping to 6%.
That marks a decline from tax year 2022 when the respective rates on those levels of income were at 5.85% and 6.25%.
The flat tax rate in North Carolina is dropping to 4.75% in 2023, down from the previous rate of 4.99%.
As many states are adopting a flat-tax rate with continued reduction to near zero, welcomed relief couldn't come soon for many Americans tightening the reigns on their household budgets.
As many states who have a state income tax are adopting a flat-tax rate and others continuing reductions to near zero, it couldn't come at a better time for many American residents of these states as inflation increases and a looming recession on the horizon.