Additional Coverage:
- 9 American states to slash individual income tax rates in 2026 — key details revealed (marketrealist.com)
Good News for Your Wallet: Nine States Set to Cut Income Taxes in 2026
After a year of tightening belts and navigating economic headwinds, a breath of fresh air is coming for taxpayers in nine American states. As the calendar flips to 2026, these states are set to reduce individual income tax rates, offering some much-needed relief. This move is part of an ongoing trend, largely fueled by increased state budgets during the pandemic when federal aid allowed for significant financial maneuvering.
However, it’s not all sunshine and rainbows. While tax cuts are certainly welcome news for individuals, some experts caution that reducing or eliminating state income taxes could potentially impact investments in vital public services. It’s a delicate balance between putting more money in residents’ pockets and ensuring robust funding for state-run programs.
Let’s take a closer look at which states are making these changes and by how much:
Georgia: This Republican-led state is kicking off 2026 by lowering its income tax rate from 5.19% to 5.09%. The Peach State has its sights set on an even lower rate, aiming for a 0.10% reduction each year until it hits 4.99%. There’s even talk among some advocates of eliminating the state’s income tax entirely down the line.
Indiana: Hoosiers will see a slight but welcome dip in their flat income tax rate, moving from 3% to 2.95%. This change stems from a 2023 budget measure and is just the beginning, with predictions of a further drop to 2.9% in 2027.
Kentucky: Despite having a split government with a Republican-majority legislature and a Democratic governor, Kentucky is united on this front. The state will significantly reduce its income tax rate from 4% to 3.5% starting January 1st, a substantial change brought about by a 2022 bill.
Mississippi: The Magnolia State is also making a big splash with its income tax cuts. On January 1st, the rate will fall from 4.4% to 4%.
But that’s not the end of the story – Republican Gov. Tate Reeves has signed legislation with the ambitious goal of reaching a 3% rate by 2030, with the ultimate vision of eliminating the state income tax altogether.
Montana: Residents in Montana will see their top marginal income tax rate decrease from 5.9% to 5.65% in 2026, with plans for it to further drop to 5.4% in 2027.
Nebraska: The Cornhusker State is also joining the trend with a notable reduction in its income tax rate. Starting in 2026, the current 5.2% rate will fall to 4.55%, with further reductions planned to reach 3.99% by 2027.
North Carolina: Tar Heel State taxpayers can anticipate their flat income tax rate, applicable to all income levels, to decrease from 4.25% to 3.99% in 2026.
Ohio: Thanks to a new budget bill, Ohio is simplifying things by establishing a flat income tax rate of 2.75% for all non-business income exceeding $26,050. This is a reduction from the previous 3.125%.
Oklahoma: The Sooner State, another red state, will see its residents benefit from a drop in income tax, moving from 4.75% to 4.5%.
For many Americans, these tax cuts represent a glimmer of hope amidst ongoing economic uncertainties, promising a little more wiggle room in their household budgets as the new year dawns.