News & Trending Tax News

9 States Where Income Tax Rules Are Changing in 2025

A changing state income tax rate could have a big impact on your wallet.

By Sarah Sharkey

Edited by Chris Kissell

Updated Jan. 28, 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.

Steal this billionaire wealth-building technique

The ultra-rich have also been investing in art from big names like Picasso and Bansky for centuries. And it's for a good reason: Contemporary art prices have outpaced the S&P 500 by 136% over the last 27 years.

A new company called Masterworks is now allowing everyday investors to get in on this type of previously-exclusive investment. You can buy a small slice of $1-$30 million paintings from iconic artists, all without needing any art expertise.

If you have at least $10k to invest and are ready to explore diversifying beyond stocks and bonds,see what Masterworks has on offer. (Hurry, they often sell out!)

Indiana

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.

Want to learn how to build wealth like the 1%? Sign up for Worthy to get ideas and advice delivered to your inbox.

Iowa

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.

Louisiana

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.

Get a free stock valued between $5 to $200

Secret: You don't need thousands of dollars to buy thousand-dollar stocks or create a diverse portfolio.

Robinhood offers a method of investing called “fractional shares.” On its own, one share of a single stock could cost a lot of money, making it difficult to diversify. Robinhood allows you to buy pieces of stock instead, so you have the option to build a diverse portfolio quickly.

Let’s say you want to invest $250, as an example.

With that amount, you could build a relatively diverse portfolio with an investment of $50 in a big tech stock, $50 in a retail stock, $50 in an energy stock, $50 in a manufacturing stock, and $50 in a bank.¹ This content is for informational purposes only, you should not construe any such information as legal, tax, investment, financial, or other advice. To get stock reward, new customers need to sign up, get approved, and link their bank account. Stock rewards shares cannot be sold until 3 trading days after the reward is granted and the cash value of the stock rewards may not be withdrawn for 30 days after the reward is claimed. Stock rewards not claimed within 60 days may expire. See full terms and conditions at <a href="https://robinhood.com/us/en/support/articles/open-account-pick-your-stock/">rbnhd.co/freestock</a>. Fractional shares are illiquid outside of Robinhood and are not transferable. Not all securities available through Robinhood are eligible for fractional share orders. For a complete explanation of conditions, restrictions and limitations associated with fractional shares, see the Fractional Shares section of our Customer Agreement. Robinhood Gold is offered through Robinhood Financial LLC and is a membership offering premium services available for a fee.

Even better news? Add a Robinhood Gold membership, and you’ll get access to 4.00% (as of 12/27/24) APY² Annual Percentage Yield. Rate valid as of April 12, 2024. To earn interest, a cash balance is needed. If you have a margin balance, there is no cash balance to earn interest. Interest rates for cash sweep and margin investing can change at any time. Fees may reduce interest earnings. on your uninvested cash³ Interest is earned on uninvested cash swept from your brokerage account to partner banks. Partner banks pay interest on your swept cash, minus any fees paid to Robinhood. As of Nov 15, 2023, the Annual Percentage Yield (APY) that you will receive is 1.5%, or 5% for Gold customers. The APY might change at any time at the partner banks' or Robinhood's discretion. Additionally, any fees Robinhood receives may vary and are subject to change. Neither Robinhood Financial LLC nor any of its affiliates are banks. All investments involve risk and loss of principal is possible. Robinhood Financial LLC (member SIPC), is a registered broker dealer. and the ability to buy and sell stocks 24 hours a day, 5 days a week.

Open and fund a Robinhood account and earn up to $200 in stock

Mississippi

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

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

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.

Grow Your $$: 11 brilliant ways to build wealth after 40

New Mexico

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.

North Carolina

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

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.

Earn up to a $300 bonus and grow your money with up to 3.80% APY

This powerful combination checking + savings account from SoFi® allows you to earn up to a $300 bonus with direct deposit and grow your money with up to 3.80% APY.⁴ New and existing Checking and Savings members who have not previously enrolled in Direct Deposit with SoFi are eligible to earn a cash bonus of either $50 (with at least $1,000 total Direct Deposits received during the Direct Deposit Bonus Period) OR $300 (with at least $5,000 total Direct Deposits received during the Direct Deposit Bonus Period). Cash bonus will be based on the total amount of Direct Deposit. Direct Deposit Promotion begins on 12/7/2023 and will be available through 1/31/2026. See full bonus and annual percentage yield (APY) terms at <a href="http://www.sofi.com/banking#1">sofi.com/banking#1</a>. SoFi Checking and Savings is offered through SoFi Bank, N.A., Member FDIC. SoFi members who enroll in SoFi Plus with Direct Deposit or by paying the SoFi Plus Subscription Fee every 30 days or with $5,000 or more in Qualifying Deposits during the 30-Day Evaluation Period can earn 3.80% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. There is no minimum Direct Deposit amount required to qualify for the stated interest rate. Members without either SoFi Plus or Qualifying Deposits, during the 30-Day Evaluation Period will earn 1.00% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Only SoFi Plus members are eligible for other SoFi Plus benefits. Interest rates are variable and subject to change at any time. These rates are current as of Jan. 24, 2025. There is no minimum balance requirement. Additional information can be found at <a href="http://www.sofi.com/legal/banking-rate-sheet">http://www.sofi.com/legal/banking-rate-sheet</a>. See the SoFi Plus Terms and Conditions at <a href="https://www.sofi.com/terms-of-use/#plus">https://www.sofi.com/terms-of-use/#plus</a>.

This is one of the top accounts we’ve seen, and offers like this can be rare. You work hard, and now it’s time to make your money work for you — with SoFi, you can grow your money with hardly any effort!

SoFi has no account fees⁵ We do not charge any account, service or maintenance fees for SoFi Checking and Savings. We do charge a transaction fee to process each outgoing wire transfer. SoFi does not charge a fee for incoming wire transfers, however the sending bank may charge a fee. Our fee policy is subject to change at any time. See the SoFi Checking & Savings Fee Sheet for details at <a href="http://sofi.com/legal/banking-fees/">sofi.com/legal/banking-fees/</a> or overdraft fees⁶ Overdraft Coverage is limited to $50 on debit card purchases only and is an account benefit available to customers with direct deposits of $1,000 or more during the current 30-day Evaluation Period as determined by SoFi Bank, N.A.  The 30-Day Evaluation Period refers to the "Start Date" and "End Date" set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the "30-Day Evaluation Period"). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY.  Members with a prior history of non-repayment of negative balances are ineligible for Overdraft Coverage. and additional FDIC insurance up to $3 million on deposits is available through a seamless network of participating banks.⁷ SoFi Bank is a member FDIC and does not provide more than $250,000 of FDIC insurance per depositor per legal category of account ownership, as described in the FDIC’s regulations. Any additional FDIC insurance is provided by the SoFi Insured Deposit Program. Deposits may be insured up to $3M through participation in the program. See full terms at <a href="http://sofi.com/banking/fdic/sidpterms">SoFi.com/banking/fdic/sidpterms</a>. See list of participating banks at <a href="http://sofi.com/banking/fdic/participatingbanks">SoFi.com/banking/fdic/participatingbanks</a>. Plus, you can receive your paycheck up to 2 days early.⁸ Early access to direct deposit funds is based on the timing in which we receive notice of impending payment from the Federal Reserve, which is typically up to two days before the scheduled payment date, but may vary.

How to earn up to $300: Sign up and make a direct deposit within the first 25 calendar days of the promotional period, then collect a $300 cash bonus with a direct deposit of $5,000 or more.

SoFi is a Member, FDIC. ⁷ SoFi Bank is a member FDIC and does not provide more than $250,000 of FDIC insurance per depositor per legal category of account ownership, as described in the FDIC’s regulations. Any additional FDIC insurance is provided by the SoFi Insured Deposit Program. Deposits may be insured up to $3M through participation in the program. See full terms at <a href="http://sofi.com/banking/fdic/sidpterms">SoFi.com/banking/fdic/sidpterms</a>. See list of participating banks at <a href="http://sofi.com/banking/fdic/participatingbanks">SoFi.com/banking/fdic/participatingbanks</a>.

Open your SoFi account and set up direct deposit

Other states making changes

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.

Bottom line

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.

More from FinanceBuzz:

Invest in Paintings by Basquiat, Picasso, Banksy

Masterworks Benefits

Invest in art like a millionaire for a relatively low cost
Art investments have outperformed the S&P 500 by over 131% for 26 years
Purchase shares of artwork by top artists
Hedge against inflation and diversify your portfolio

Visit Masterworks