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9 States Changing Income Tax Rules in 2026 (Is Yours One?)

Some states are lowering income tax rates in 2026, which could improve household cash flow for millions of residents.

By Adam Palasciano

Edited by Andrea Basse

Updated Jan. 19, 2026

State income tax changes rarely make headlines, but they can quietly influence your annual budget. As several states adjust their tax structures in 2026, even small rate cuts may add up over time. If you want to prepare yourself financially, understanding these changes can help you plan how to use extra take-home pay. For many households, lower taxes create flexibility during a period of inflationary pressures.

Here are nine states where income tax rates are scheduled to decline in 2026.

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Georgia

Georgia's top individual income tax rate is set to fall from 5.19% in 2025 to 5.09% in 2026. While the reduction is modest, it may slightly increase net pay for workers and retirees.

Over a full year, that extra money could help offset higher everyday expenses. Some households could redirect the savings toward building emergency funds.

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Indiana

Indiana's income tax rate is scheduled to decline from 3.00% in 2025 to 2.95% in 2026, which could benefit many taxpayers statewide.

The change could provide incremental relief for both wage earners and small business owners. Even small savings can improve budgeting consistency throughout the year.

Kentucky

Kentucky plans one of the larger rate cuts, lowering its individual income tax from 4.00% in 2025 to 3.50% in 2026. This change could noticeably increase after-tax income for many residents.

Some taxpayers may choose to apply the difference toward debt reduction. Others may find it easier to manage rising housing or health care costs.

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Mississippi

Mississippi's top marginal rate is set to decrease from 4.40% in 2025 to 4.00% in 2026. The reduction reflects a broader effort to ease individual tax burdens.

For working households, the added cash flow could support savings goals. Retirees may also benefit from slightly improved fixed-income flexibility.

Montana

Montana is reducing its top income tax rate from 5.90% in 2025 to 5.65% in 2026. While the cut is modest, it may still affect annual tax bills.

Residents with higher taxable income could notice the most change. Over time, even small reductions can support long-term financial planning.

Nebraska

Nebraska's income tax rate is scheduled to drop from 5.20% in 2025 to 4.55% in 2026. This relatively larger decrease may have a more visible impact on take-home pay.

Some households could use the additional funds to boost retirement contributions. Others may focus on managing education or childcare expenses.

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North Carolina

North Carolina plans to lower its income tax rate from 4.25% in 2025 to 3.99% in 2026.

The change may help households absorb higher utility or insurance costs. For some, it may also encourage more consistent saving habits.

Ohio

Ohio's top marginal income tax rate is scheduled to fall from 3.125% in 2025 to 2.75% in 2026. The reduction may provide modest relief for middle- and higher-income earners.

Increased take-home pay could support short-term financial goals. It may also make budgeting more predictable during periods of inflation.

Oklahoma

Oklahoma plans to reduce its individual income tax rate from 4.75% in 2025 to 4.50% in 2026. The adjustment could leave residents with slightly more discretionary income.

Some taxpayers may choose to apply the savings toward investing. Others may prioritize everyday necessities as costs continue to rise.

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Bottom line

Income tax reductions scheduled for 2026 may seem small on paper, but they can influence household finances over time. Across these nine states, even incremental changes could free up money for saving, investing, or managing debt.

Taking note of how state-level tax policy affects your paycheck may help you plan more intentionally and lower your financial stress as the new year approaches.

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