Recent state income tax reductions enacted

Many state income taxpayers can look forward to a rate cut in the coming tax years. Multiple states have enacted corporate and personal income tax rate cuts during their most recent legislation sessions.

Which states have enacted corporate rate cuts?

States that have lowered the corporate income tax rate include:

• Arkansas, beginning in 2023;
• Iowa, beginning in 2023;
• Idaho, beginning in 2022;
• Nebraska, beginning in 2022; and
• Utah, beginning in 2022. 

Iowa’s rate cuts are dependent on state corporate income tax revenue. The rate of tax will be adjusted so that corporate income tax revenue will generate $700 million in a fiscal year for the state. The calculation will take place at the conclusion of each fiscal year until the rate is lowered to 5.5%. 

In addition to a rate cut in 2023, Arkansas will cut rates in 2024 and 2025 if a transfer from its reserve fund is not necessary.

Which states are still considering rate cuts?

States that are still considering legislation to cut corporate tax rates include:

• Arizona;
• Michigan;
• New Hampshire;
• Oklahoma (corporate tax, franchise tax);
• Pennsylvania; and
• Rhode Island.

Which states have enacted personal income tax rate cuts?

States that have lowered the personal income tax include:

• Arkansas, beginning in 2023;
• Kentucky, beginning in 2023;
• Indiana, beginning in 2023;
• Iowa, beginning in 2023;
• Idaho, beginning in 2022;
• Mississippi, beginning in 2023;
• Nebraska, beginning in 2023;
• New York (accelerated existing cuts); and
• Utah, beginning in 2022.

Many of the rate reductions begin in 2023 and then there are further reductions in future years.

Contingent rate cuts

Like some of the corporate rate cuts, some future rate cuts are contingent on state revenue.

Arkansas personal income tax rate reductions occur under similar conditions as its corporate rate reductions.

Kentucky’s rate reduction occurs if the balance in the:

• state’s reserve trust fund exceeds its general operations fund by 10%; and
• general operations fund is equal to or more than fiscal year appropriations plus the reduction in revenue from a 1% decrease in the income tax rate.

If the conditions are met, the tax rate decreases by 0.5%.

Indiana reduces the rate in 2023 and then future rate reductions occur after 2024 if certain state revenue conditions are met.

Mississippi reduced rates and requires the legislature to consider whether rate will be further reduced after 2026.

Which states may yet lower personal income tax rates?

State that are still considering lowering personal income tax rates include:

• Massachusetts; and
• Oklahoma.

Which states lowered personal income tax rates on retirement income?

Multiple states chose to have a more targeted reduction of tax. These states focused on retirement income. The state lowered rates or exempted portions of retirement income from tax. The states making changes to taxation of retirement income include:

• Alabama;
• Connecticut;
• Georgia;
• Iowa;
• Maryland;
• Nebraska;
• New Mexico; and
• Oklahoma.