Lower individual income tax rates go into effect in some states in 2023

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Residents of some states will see lower individual income tax rates in 2023. In addition, Colorado voters at the November 8, 2022 general election approved a measure retroactively lowering the state income tax rate for tax year 2022.

What tax rate changes take effect in 2023?

The following tax rate changes take effect in 2023.

Arizona

Arizona enacted legislation in 2021 phasing in a flat tax over a period of three years, subject to certain revenue thresholds being met. In a letter to the Department of Revenue, Gov. Doug Ducey directed that the 2.5% flat tax be implemented for 2023, as record revenues unlocked the flat tax ahead of schedule.

Idaho

Idaho enacted legislation in 2022 replacing its graduated tax rates ranging from 1% to 6% with a flat 5.8% tax rate. The new rate is effective for tax years beginning on or after January 3, 2023.

Indiana

Indiana enacted legislation in 2022 cutting the individual income tax rate from 3.23% in 2022 to 3.15% in 2023 and 2024. Additional rate reductions may occur after 2025 if specific revenue conditions are met.

Iowa

Iowa enacted legislation in 2022 moving from nine tax brackets with a top rate of 8.53% for 2022 to four tax brackets with a top rate of 6% for 2023. The number of brackets and the top rate will continue to decrease each year until it reaches a flat 3.9% tax rate in 2026.

Kentucky

The Kentucky individual income tax rate was subject to reduction after 2022 if general fund receipts exceeded certain thresholds. The Department of Revenue determined that the rate reduction conditions were met and announced that the rate would drop from 5% in 2022 to 4.5% in 2023. The Kentucky individual income tax rate was subject to reduction after 2022 if general fund receipts exceeded certain thresholds. The Department of Revenue determined that the rate reduction conditions were met and announced that the rate would drop from 5% in 2022 to 4.5% in 2023. 

Nebraska

Nebraska enacted legislation in 2022 decreasing the income tax rate paid by individuals in the highest tax brackets from 6.84% before 2023 to 6.64% for 2023. The top tax rate will continue to decrease each year until it reaches 5.84% after 2026.

North Carolina

North Carolina enacted legislation in 2021 reducing its individual income tax rate each year over six years. The rate drops from 4.99% in 2022 to 4.75% in 2023.

What tax rate change takes effect retroactively in Colorado for 2022?

In Colorado, voters recently decided to cut the statutory income tax rate from 4.55% to 4.4%, beginning in the 2022 tax year. A temporary 4.5% tax rate was in effect for 2021. The temporary rate reduction was authorized under the Taxpayer’s Bill of Rights amendment to the Colorado Constitution.