Income tax cuts took effect in nine states on the first day of 2026.
As 2025 gave way to 2026, income tax rates fell in Georgia, Indiana, Kentucky, Mississippi, Montana, Nebraska, North Carolina, Ohio, and Oklahoma. The following rate cuts took effect in each of those nine states on January 1, 2026:
• Georgia: The rate decreased from 5.19 percent to 5.09 percent. (The state is on a schedule to lower the rate by 0.10 percent annually until it reaches 4.99 percent).
• Indiana: The flat income tax rate decreased from 3.0 percent to 2.95 percent.
• Kentucky: The flat income tax rate decreased from 4.0 percent to 3.5 percent.
• Mississippi: The flat income tax rate decreased from 4.4 percent to 4.0 percent. (This is part of a plan to phase out the income tax entirely).
• Montana: The top marginal income tax rate decreased from 5.9 percent to 5.65 percent.
• Nebraska: The top marginal income tax rate decreased from 5.2 percent to 4.55 percent.
• North Carolina: The flat income tax rate decreased from 4.25 percent to 3.99 percent.
• Ohio: The state completed its transition to a flat tax, reducing the top marginal rate from 3.5 percent to a flat 2.75 percent on income over $26,050.
• Oklahoma: The top marginal income tax rate decreased from 4.75 percent to 4.5 percent.
Number of Flat Tax States Grows, Club of No-Income-Tax States Poised for Expansion
In addition to being one of the nine states where an income tax cut took effect on the first day of 2026, Ohio also became the 14th state with a flat income tax. That brings the number of states with a flat or zero rate income tax to 24.
Though not among the places where the state income tax rate fell on New Year’s Day, some of the boldest and most pro-growth income tax rate cuts of 2025 were enacted in South Carolina. One year ago, on the first day of 2025, South Carolina’s then-6.2 percent top rate was scheduled to fall to 6.1 percent on the first day of 2026 as part of a phased-in income tax cuts enacted in 2022. But the new state budget approved by South Carolina legislators and Gov. Henry McMaster (R-S.C.) in 2025 accelerated that tax cut, taking the top rate down to 6.0 percent ahead of schedule. The new budget sped up the phase down to 6.0 percent by making it retroactive to January 1, 2025, two years earlier than originally scheduled to take effect.
In addition to accelerating the top rate phase down to 6.0 percent, the South Carolina House approved another bill last year that would schedule further income tax rate reduction in the coming years. The South Carolina Senate will soon take up that House-passed tax plan, which moves the state to a 1.99 percent flat rate over the next five years. What’s more, the House-approved tax bill schedules that 1.99 percent flat rate to subsequently be phased down to zero over time based on revenue triggers.
“It speaks volumes about the contrasting approach to tax policy and general governance taken by blue and red states today when you have California politicians not only pushing for a destructive 5 percent wealth tax, but seeking to impose it retroactively,” said Grover Norquist, president of Americans for Tax Reform. “Meanwhile, as California Democrats seek to impose an unprecedented wealth tax more than 11 months before voters even get the chance to sign off on the proposition, lawmakers in South Carolina and other red states are enacting retroactive income tax cuts and also seeking to phase out income taxes entirely.”
