In a move signaling a significant shift in fiscal policy, 14 states across the United States implemented cuts to individual income taxes in 2024. This development comes as states reassess their tax structures amid changing economic landscapes and evolving political priorities. Here’s a breakdown of the 14 states that cut their income tax rates in 2024.
Which States Cut Their Tax Rate?
The decision to reduce individual income taxes reflects a broader trend among state governments. They are aiming to stimulate economic growth, attract investment, and provide relief to taxpayers. The states undertaking these tax cuts span various regions, indicating a diverse range of approaches to fiscal policy.
Among the states implementing income tax cuts are Arkansas, Connecticut, Georgia, Indiana, Iowa, Kentucky, Mississippi, Missouri, Montana, Nebraska, New Hampshire, North Carolina, Ohio, and South Carolina. For residents of these states, the impending tax cuts offer the prospect of increased disposable income and potentially bolstered economic activity.
Arkansas
Governor Sanders signed the latest Arkansas tax cut bill into law on September 14, 2023. It decreases the state’s highest income tax rate from 4.7% to 4.4%. This adjustment follows a prior reduction from 4.9% in April 2023. Arkansas taxpayers who earn over $87,000 will reap the benefits of this tax break. In addition, the corporate tax rate was reduced from 5.1% to 4.8% for those earning over $11,000.
Connecticut
On January 1, 2024, Connecticut implemented its first income tax rate reduction since the mid-1990s. Additionally, it was the largest cut in state history. The state’s progressive tax structure saw decreases in the two lowest rates. Single filers now pay 2% on the first $10,000 earned and 4.5% on the next $40,000, down from 3% and 5% respectively. Joint filers now pay 2% on the first $20,000 earned and 4.5% on the next $80,000, down from 3% and 5% respectively.
Georgia
Georgia Governor Brian Kemp signed HB 1437 into law on April 26, 2022. It replaced the state’s graduated personal income tax with a flat rate of 5.49% starting January 1, 2024. Subsequent gradual reductions will bring the flat rate down to 4.99% by January 1, 2029. However, these reductions may be postponed by one year for each year that specific budget conditions are not fulfilled.
Indiana
Indiana’s House Bill 1001 speeds up the state’s scheduled rate cuts by lowering the individual income tax rate from 3.15% to 3.05% in 2024. It also removes related tax triggers associated with state revenue increases. The bill outlines additional reductions to 3.0% in 2025, 2.95% in 2026, and 2.9% from 2027 onwards.
Iowa
Iowa’s tax relief efforts persist in 2024. Corporate taxpayers will face a contingent flat tax plan with rates of 5.5% on income below $100,000 and 7.1% on income exceeding $100,000. Individual taxpayers will see a gradual move towards a flat income tax rate of 3.9% by 2026, with the top marginal tax rate reaching 5.7% in 2024.
Kentucky
In February 2023, Kentucky passed House Bill 1. This bill lowers the state’s flat income tax rate from 4.5% to 4.0%, which took effect in 2024.
Mississippi
The state implemented a single rate for individual tax purposes on income surpassing $10,000. In 2024, this rate will decrease to 4.7% from the initial rate of 5% established in 2023. The rate is scheduled to decrease to 4.0% by 2026. Additionally, the franchise tax is slated to diminish to zero by 2028.
Missouri
In July 2023, Missouri Governor Parson signed Senate Bill 190, eliminating the income threshold for deductibility and effectively exempting Social Security payments from state income tax. Consequently, federal Social Security payments will not be taxed. Additionally, for 2024, the top individual income tax rate was reduced to 4.8%, down from 4.95%.
Montana
In 2021, Montana enacted Senate Bill 399, initiating changes to the state’s tax code effective in 2024. The law consolidated seven individual income tax brackets into two, lowering the top marginal rate from 6.75% to 6.5%. Additionally, in 2023, the legislature further reduced this rate to 5.9%. Montana will also implement lower tax rates for capital gains income, taxing them at either 3% or 4.1%.
Nebraska
Nebraska expedited previously planned reductions to both individual and corporate tax rates, lowering the top marginal tax rate earlier than initially projected. For corporations, the aim is to achieve a flat income tax rate of 3.99% by 2027. In 2024, the top marginal tax rate will decrease from 7.25% to 5.84% on income exceeding $100,000. Similarly, for individual taxpayers, the goal is to reach a top rate of 3.99% by 2027. However, in 2024, this rate will be 5.84%, achieved three years ahead of schedule.
New Hampshire
Through S.B. 189, New Hampshire lawmakers have disconnected the state’s tax code from the federal business net interest limitation under IRC § 163(j), enabling businesses to fully deduct interest expenses in the year incurred. Additionally, taxpayers can now deduct any previously disallowed business interest expenses carryforwards over three years. The state’s budget (H.B. 2), enacted in June 2023, hastens the phaseout of the tax on interest and dividends income, now slated for elimination in 2025 instead of 2027. In 2024, the rate will be reduced to 3%, down from 4%.
North Carolina
The state’s budget, Session Law 2023-134, sets the individual income tax rate at 4.5% for 2024, down from 4.75%. Further reductions in subsequent years are dependent on meeting revenue targets.
Ohio
Ohio’s biennial budget, signed in July 2023, merges the top two marginal tax rates for individual income into a single rate of 3.5%, reduced from 3.75% in 2023.
South Carolina
In recent years, South Carolina has lowered personal income tax rates from 7% in 2022 to 6.5% in 2023. It reduced its top individual income tax rate to 6.4% in 2024. Further, the state aims to decrease the tax by .1% each year until it is 6%. However, this will be contingent upon revenue triggers.
Implications of State Income Tax Cuts
While the implementation of income tax cuts is poised to deliver tangible benefits to residents and businesses in these states, it also raises pertinent questions about revenue implications and budgetary trade-offs. Policymakers must navigate these challenges adeptly to ensure that tax cuts are sustainable and do not compromise essential public services or fiscal stability. For instance, in 2012, Kansas cut income tax rates by nearly a third and almost eliminated business taxes hoping for a rejuvenated economy. Unfortunately, this resulted in the need to cut some social services and the cuts were eventually reversed.
Moreover, the efficacy of income tax cuts in stimulating economic growth and generating long-term prosperity remains a subject of debate among economists and policymakers. While proponents argue that lower taxes incentivize work, investment, and entrepreneurship, skeptics caution against potential revenue shortfalls and widening income inequality.
State Tax Help for Taxpayers
The 14 states that cut their income tax rates in 2024 signal a significant development in state fiscal policy, with implications for residents, businesses, and policymakers alike. As these states embark on their respective tax relief efforts, the outcomes will be closely scrutinized, offering valuable insights into the interplay between taxation, economic growth, and public welfare in the United States. Optima Tax Relief has a team of dedicated and experienced tax professionals with proven track records of success who may be able to help with your state tax issues. You can contact one of our tax professionals to see if they can help in your state.
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