Money flows where it is treated best. As states compete for residents and businesses, smart governments recognize that lower taxes attract capital, talent, and growth. In 2025, nine specific states are actively cutting income tax rates.
For high-income earners, understanding these trends is critical—not just for current residents, but for anyone evaluating relocation, business entity structuring, or long-term investment strategies.
Which States Are Cutting Taxes in 2025?
According to the Tax Foundation, the following nine states are implementing income tax reductions starting in 2025:
Quick Reference Table: 2025 Tax Rate Changes
| State | Current Rate | 2025 New Rate | Key Strategy/Goal |
| Indiana | 3.23% (Flat) | 3.15% | Maintaining low-tax Midwestern leadership |
| Iowa | 4.4% – 6.0% | 3.9% (Flat) | A major shift to a flat tax structure |
| Kentucky | 4.5% (Flat) | 4.0% | Phasing out income tax entirely (revenue dependent) |
| Mississippi | 4% & 5% brackets | Eliminating 4% bracket | Goal: Complete elimination of income tax |
| Missouri | 5.3% (Top) | 4.95% | Simplified brackets to benefit small business |
| Montana | 6.9% (Top) | 6.5% | Simplified structure favoring remote workers |
| Nebraska | 6.84% (Top) | 5.84% | Aggressive goal to reach 3.99% by 2027 |
| New Hampshire | 5% (Interest/Divs) | 4% | Phasing out investment tax by 2026 |
| Utah | 4.85% (Flat) | 4.65% | Sustaining a business-friendly environment for tech |
Detailed Analysis: The “Bold Moves” by State
The Flat Tax Adopters
- Iowa: Perhaps the most dramatic reform, Iowa is transitioning from a progressive system topping at 6.0% to a flat 3.9%. This move positions Iowa competitively against neighbors with no income tax.
- Kentucky: With a drop from 4.5% to 4.0%, Kentucky is balancing immediate relief with fiscal sustainability, aiming to eventually phase out income tax entirely.
The “Zero Income Tax” Aspirants
- Mississippi: Pursuing a “transformative” path, Mississippi is eliminating its 4% bracket entirely in 2025, with the long-term goal of completely eliminating individual income tax.
- New Hampshire: Already having no wage tax, the state is reducing its tax on interest and dividends to 4%, aiming for total elimination by 2026.
The Strategic Reducers
- Nebraska: To stop “brain drain,” Nebraska is cutting its top rate to 5.84% with a target of 3.99% by 2027 to retain young professionals.
- Indiana & Utah: Both states are incrementally lowering already competitive flat rates to reinforce their “open for business” status.
Why Are States Cutting Taxes Now?
These reductions are not random; they are strategic responses to a changing economic landscape.
- Post-Pandemic Migration: Remote work allows millions to choose residency based on preference rather than job location, forcing states to compete for mobile workers.
- Business Relocation: Major corporations (e.g., Tesla, Oracle) are moving to lower-tax jurisdictions, prompting states to adjust policies to attract or retain employers.
- The SALT Cap: The 2017 federal cap on State and Local Tax deductions made high-tax states significantly more expensive for residents, triggering a wave of competitive rate cutting.
- Surplus Revenues: Strong economic performance has left many states with budget surpluses, allowing for tax cuts without reducing services.
Wealth Strategy: What This Means for Your Portfolio
Even if you do not reside in these nine states, their policy changes should inform your broader financial planning.
1. Relocation Leverage
If you are considering a move, look for states with a trajectory toward tax-friendliness. For example, Iowa’s move to a 3.9% flat rate makes it significantly more attractive than it was five years ago. Conversely, neighboring states like Illinois (4.95%) and Minnesota (9.85%) now appear comparatively expensive.
2. Business Entity Structuring
Where you establish business entities matters. States that are actively cutting taxes may offer superior long-term environments for operations.
3. Investment Forecasting
Economic growth often follows tax reduction. Real estate and business investments in cutting states may benefit from increased economic activity and migration.
4. Income Timing
If you live in a state with declining rates, tactical planning—such as deferring income into lower-rate years—can yield significant savings.
Your Action Plan for 2025
To capitalize on these changes, apply the following steps:
- Audit Your Burden: Calculate exactly what you currently pay in state income taxes.
- Model Alternatives: Compare your current situation against 2-3 lower-tax states.
- Track Trajectories: Determine if your state is moving toward or away from tax-friendliness.
- Set a Deadline: Parkinson’s Law states that without deadlines, nothing happens. If a change makes sense, commit to a decision timeline.
The Bottom Line: High earners understand that every dollar saved in taxes is a dollar available for investment, experiences, and building their ideal life. Whether you move or simply restructure, use these policy changes to invest for joy.
