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11 States Where Tax Rules Just Changed (And What It Means for You)

These 11 states are offering lower income tax rates or more generous breaks.

By Ashley Donohoe, MBA, CFLP®, CFEI®, FPWMP® , Edited by Andrea Basse

Updated Sept. 1, 2026

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In most states, you'll need to prepare your budget for state income taxes, and several states just changed their tax rules starting with the new year. While lower tax rates and more generous credit amounts will be good news if you want to keep more cash in your wallet, stricter rules for tax breaks can work against you if you're a high earner.

If you're wondering what to expect, here are 11 states with major tax rule changes for 2026.

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Georgia

While some states use different systems for individual and business income taxes, Georgia charges the same flat rate for both. After already paying a reduced rate of 5.19% in 2025, businesses and individuals will pay a 5.09% in 2026.

The difference seems small, but the savings can add up for those with higher taxable incomes. Georgia also plans to ultimately lower the rate to 4.99%.

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Indiana

Indiana stands out for having one of the lowest state income tax rates in the country and uses a flat tax system. Individuals will see a little savings in 2026, thanks to the individual income tax rate falling from 3% to 2.95%.

Other 2026 changes that may help Indiana taxpayers keep more of their money include various credits for property taxes, disabled veterans, and fixed-income seniors.

Kentucky

Kentucky is one of the states with a simple flat individual income tax rate. For 2026, residents will get a small break and pay 3.5% instead of 4%. This rate applies not only to income from work but also to short- and long-term capital gains.

These savings are in addition to the state's other tax perks, including generous exemptions and deductions for retirement income and low property taxes.

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Michigan

While Michigan isn't changing its flat 4.25% individual income tax rate for 2026, other changes could help the state's taxpayers save some money.

Through 2028, income taxes won't apply to tips or overtime income, similar to the federal change with the One Big Beautiful Bill. Plus, retirees can maximize their Social Security benefits without paying state taxes on the funds.

Mississippi

Thanks to a 2025 bill, Mississippi will eventually not have individual income taxes. In the meantime, taxpayers will benefit from lowered rates each year.

For 2026, the 4.4% flat rate on taxable income above $10,000 drops to 4%. This should offer some financial relief, especially when combined with the lower 5% grocery sales tax rate the state set in mid-2025.

Montana

Montana has a graduated individual income tax structure with two brackets. The highest earners will benefit from a lower tax rate of 5.65% in 2026, down from 5.9% in 2025. Plus, the lower bracket with a 4.7% rate now covers a significantly wider income range.

Other notable changes include a bigger state earned income tax credit and property tax breaks for certain properties, including homesteads and long-term rentals.

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Nebraska

Nebraska has lowered the top two rates in its tiered individual income tax system annually since 2024. For 2026, top earners will see a slight decrease from 6.84% to 6.64%, while tier-three earners will pay 4.55% instead of 5.01%.

Not only will individuals see a little more of their paychecks, but Nebraska's corporate income tax rate also drops from 5.20% to 4.55% in 2026, with a further reduction in 2027.

North Carolina

North Carolina residents should see a small increase in their paychecks. The state has lowered its flat individual income tax rate from 4.25% to 3.99% for 2026 and beyond.

Certain business owners will also face a lower tax bill. As part of the state's efforts to phase out the corporate income tax, the rate decreases from 2.25% to 2% in 2026.

Ohio

Ohio previously used a tiered individual income tax system with a top rate of 3.125% in 2025. The switch to a 2.75% flat tax on non-business income for 2026 will particularly help higher earners save some money.

At the same time, the state has toughened the rules for common exemptions and credits. High earners with modified adjusted gross incomes over $500,000 won't benefit.

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Oklahoma

Oklahoma has simplified its six-tier individual income tax system for 2026. There are now only three brackets, with the top rate decreasing from 4.75% to 4.5%.

Residents of all income levels should see slightly larger paychecks in 2026 thanks to lower rates. Additionally, a 2025 state law may lead to an eventual phaseout of state income taxes based on revenue collections.

West Virginia

West Virginia is already known as a retiree haven for its low cost of living, low property taxes and reasonable income tax rates.

It becomes more appealing in 2026 since eligible residents won't pay state income taxes on Social Security benefits. This tax break requires a federal adjusted gross income of no more than $50,000 for single filers or $100,000 for joint filers.

Bottom line

Regardless of your state, you should check the 2026 tax rules to understand what you'll need to pay so you can prepare your budget and avoid surprise bills. You might also learn about potential credits and deductions that lower your tax bill.

Additionally, while the state tax changes discussed might save you money in 2026, don't forget to find ways to get out of tax debt if you owe your state or the IRS any back taxes.

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