9 States Where Income Tax Rules Are Changing in 2025

Most states levy an income tax, which means residents pay such taxes at both the state and federal level. As with federal income tax rules, state regulations can change from year to year.

In 2025, several states are changing their tax rules. Some of these revisions will allow you to keep more cash in your wallet, but others might result in a higher tax burden.

Here are the states that are making the biggest changes to their income tax rules in 2025.

Indiana assesses a flat income tax on residents across all income brackets. In 2025, the flat income tax rate is falling from 3.05% to 3%.

Although it's a small decrease, the change should still leave you with more cash in your pocket.

Iowa residents have faced a graduated state tax on individual income, with rates ranging from 4.4% to 5.7%. However, as of 2025, the state is transitioning to a flat income tax structure at a 3.8% rate.

Regardless of your income, the lower flat-tax rate should lead to a reduced tax burden.

In the past, Louisiana residents paid individual income taxes on a graduated system ranging from 1.85% to 4.25%. Starting in 2025, the state is instituting a flat income tax of 3%.

For some, this will lead to a higher tax bill. But for others, this change will result in a smaller tax burden.

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In the past, Mississippi has levied a flat income tax rate of 4.7%. In 2025, this flat tax rate will decrease to 4.4%.

The state will have a flat tax rate of 4% beginning in 2026.

Missouri operates a graduated individual income tax system, with rates ranging from 2% to 4.8%. But the top tax rate will fall to 4.7% in 2025.

The state will continue with 0.1% cuts to the top tax rate per year until the top tax rate falls to 4.5%.

Nebraska residents face a graduated individual income tax system. In the past, rates have ranged from 2.46% to 5.84%.

In 2025, the top tax rate will decrease to 5.2%. By 2027, the top tax rate will fall to 3.99%. For higher earners, this will lead to a lower tax obligation.

In New Mexico, residents operate within a graduated state individual income tax system, with rates ranging from 1.7% to 5.9%.

In 2025, New Mexico will add a new 4.3% tax bracket for single filers with incomes between $16,500 and $33,500 and married couples filing jointly with incomes between $25,000 and $50,000.

Residents in North Carolina paid a flat 4.5% individual income tax in 2024. But in 2025, the flat tax rate will fall to 4.25%.

Ultimately, the state plans to lower the flat tax rate to 3.99% in coming years. For all taxpayers, this means paying less in state taxes.

West Virginia operates a graduated state income tax, with rates ranging from 2.36% to 5.12%. But in 2025, the top tax rate will fall to 4.82%.

If revenue goals are met, the state plans to continue cutting taxes in the future.

Although the states above are making changes to their income tax structure, they aren't the only places altering their tax codes.

New Jersey is increasing taxes on fuel, while drivers in North Carolina should see fuel taxes decrease. Other states, such as Vermont and Wisconsin, plan new taxes related to electric vehicles in 2025.

Additionally, states such as Florida and Georgia will implement property tax relief plans that should help relieve some of the financial pressure on homeowners.

If you live in a state with income taxes, staying on top of the tax code can help you figure out how much you might have to pay in taxes during the coming year.

Although paying taxes can take a bite out of your wallet, you can still get ahead financially if you understand how tax law is changing in your state and what you can do to minimize how much you pay.

If you have questions about your tax situation, reach out to a tax professional for guidance.