US states cut income taxes in 2026

Why states are lowering income tax rates

Starting January 1, 2026, nine U.S. states will reduce their individual income tax rates. The move follows a broader trend that began during the pandemic, when federal aid boosted state budgets and created fiscal space for tax relief. State governments are now using that flexibility to ease the tax burden on residents and strengthen their economic appeal.

Which states are affected

The tax cuts span a diverse group of states, including Georgia, Indiana, Kentucky, Mississippi, Montana, Nebraska, North Carolina, Ohio and Oklahoma. In most cases, the reductions are part of multi-year reform plans enacted earlier, often linked to revenue and budget performance triggers. For taxpayers, this means modest but tangible savings beginning in 2026.

Flat taxes and long-term ambitions

A notable feature of these reforms is the emphasis on flat income tax structures. States such as Indiana, North Carolina and Ohio are lowering rates within systems that apply a single tax rate regardless of income level. In Kentucky and Mississippi, policymakers have signaled longer-term ambitions to continue reducing income taxes, potentially moving toward full elimination if fiscal conditions allow.

Economic upside and fiscal concerns

Supporters argue that lower income taxes can stimulate growth, attract investment and make states more competitive in retaining workers and businesses. Critics, including budget policy groups, caution that shrinking income tax revenues could limit funding for education, infrastructure and public services, particularly if economic growth slows or budget assumptions prove overly optimistic.

Implications for households and investors

For most households, the savings will provide incremental relief rather than dramatic gains. However, combined with recent federal tax changes, including an expanded SALT deduction cap, some middle- and upper-middle-income taxpayers may see a more noticeable reduction in their overall tax burden. For investors and employers, state tax policy is increasingly part of broader location and allocation decisions.

As International Investment experts report, the wave of state-level income tax cuts in 2026 highlights intensifying competition among U.S. states for residents, labor and capital. Income tax policy is no longer just a budgetary tool but a strategic lever shaping long-term economic positioning across the country.