Thirty-four states will ring in the new year with notable taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. changes, including 17 states cutting individual or corporate income taxes (and some cutting both). Generally, state tax changes take effect either at the start of the calendar year (January 1) or the fiscal year (July 1 for most states), with rate changes for major taxes typically implemented effective January 1—either prospectively, as in these cases, or retroactively, as may happen under legislation enacted in the new year.
The past several years have seen a wave of significant tax reforms, including rate reductions and tax cuts, as states emerged from the pandemic with revenue surpluses and stared down inflationInflation is when the general price of goods and services increases across the economy, reducing the purchasing power of a currency and the value of certain assets. The same paycheck covers less goods, services, and bills. It is sometimes referred to as a “hidden tax,” as it leaves taxpayers less well-off due to higher costs and “bracket creep,” while increasing the government’s spending power. . Whether and how this trend continues is yet to be seen, but evidence from the past three years indicates that many states understand and value the importance of creating and maintaining a stable, pro-growth, and competitive tax code.
Summary of Changes
Fourteen states have individual income tax rate reductions taking effect in 2024: Arkansas, Connecticut, Georgia, Indiana, Iowa, Kentucky, Mississippi, Missouri, Montana, Nebraska, New Hampshire (interest and dividends income only), North Carolina, Ohio, and South Carolina. Two states—Ohio and Montana—will consolidate some tax brackets, and one state, Georgia, will move to a flat tax.
Michigan taxpayers will be subject to a higher individual income tax in 2024 than they saw in 2023. Two states, Montana and Massachusetts, have codified filing status requirements. And Missouri has effectively exempted social security payments from taxation.
State Income Tax Rate Changes (Top Marginal Rates, 2023 and 2024)
| State | Personal Income Taxes | Corporate Income Taxes | ||
|---|---|---|---|---|
| 2023 | 2024 | 2023 | 2024 | |
| Arkansas | 4.90% | 4.40% | 5.30% | 4.80% |
| California | 13.30% | 14.40% | ||
| Georgia | 5.75% | 5.49% | ||
| Indiana | 3.15% | 3.05% | ||
| Iowa | 6% | 5.70% | 8.40% | 7.10% |
| Kentucky | 4.50% | 4.00% | ||
| Kansas | 7% | 6.50% | ||
| Michigan | 4.05% | 4.25% | ||
| Mississippi | 5% | 4.70% | ||
| Missouri | 4.95% | 4.80% | ||
| Montana | 6.75% | 5.90% | ||
| Nebraska | 6.64% | 5.84% | 7.25% | 5.84% |
| New Hampshire* | 4.00% | 3.00% | ||
| New Jersey | 11.50% | 9% | ||
| North Carolina | 4.75% | 4.50% | ||
| Ohio | 3.99% | 3.50% | ||
| Pennsylvania | 8.99% | 8.49% | ||
| South Carolina | 6.50% | 6.40% | ||
Note: Connecticut reduced rates for certain brackets but did not reduce the top marginal rate.
Sources: State statutes; Bloomberg Tax; Tax Foundation research.
State Income Tax Rate Changes (Top Marginal Rates, 2023 and 2024)
| State | Personal Income Taxes | Corporate Income Taxes | ||
|---|---|---|---|---|
| 2023 | 2024 | 2023 | 2024 | |
| Arkansas | 4.90% | 4.40% | 5.30% | 4.80% |
| California | 13.30% | 14.40% | ||
| Georgia | 5.75% | 5.49% | ||
| Indiana | 3.15% | 3.05% | ||
| Iowa | 6% | 5.70% | 8.40% | 7.10% |
| Kentucky | 4.50% | 4.00% | ||
| Kansas | 7% | 6.50% | ||
| Michigan | 4.05% | 4.25% | ||
| Mississippi | 5% | 4.70% | ||
| Missouri | 4.95% | 4.80% | ||
| Montana | 6.75% | 5.90% | ||
| Nebraska | 6.64% | 5.84% | 7.25% | 5.84% |
| New Hampshire* | 4.00% | 3.00% | ||
| New Jersey | 11.50% | 9% | ||
| North Carolina | 4.75% | 4.50% | ||
| Ohio | 3.99% | 3.50% | ||
| Pennsylvania | 8.99% | 8.49% | ||
| South Carolina | 6.50% | 6.40% | ||
Note: Connecticut reduced rates for certain brackets but did not reduce the top marginal rate.
Sources: State statutes; Bloomberg Tax; Tax Foundation research.
One state, Kansas, will significantly reduce its grocery sales tax rate.
Five states will provide some form of relief for personal/business property owners, homeowners, and/or renters: Colorado (temporary relief), Indiana and Pennsylvania (increased property tax/rent rebate, and increased income thresholds), Texas (voter-approved ballot initiative), and Wisconsin (repeal of the tax on tangible personal property).
Oregon and Utah will be increasing the excise tax rate applied to motor fuel. Kentucky is instituting a new tax on electric vehicle power. Maine and Hawaii are making changes and updates to their tobacco and/or e-cigarette excise taxes.
Tax Changes by State
Alabama Tax Changes Effective January 1, 2024
Act 2023-421 (H.B. 217) excludes overtime wages earned by full-time employees from their gross income. Overtime pay is defined as the compensation earned for work performed in excess of 40 hours in a given week. Importantly, this exclusion is not permanent and, unless extended, will expire on June 30, 2025.
Employers are required to submit to the Department of Revenue a one-time report indicating the aggregate amount of overtime wages paid and the number of employees receiving overtime pay in 2023. Beginning in 2024, employers are required to submit a quarterly or monthly report with the same information.
Arkansas Tax Changes Effective January 1, 2024
On January 1, 2023, the state’s top marginal corporate tax rate was reduced from 5.9 percent to 5.3 percent. This rate will be further reduced to 4.8 percent on January 1, 2024. Additionally, per H.B. 1045, the state’s throwback rule will begin to phase down in 2024, with full phaseout in 2030.
The top marginal individual income tax rate was reduced to 4.9 percent in 2022, and beginning in 2024, this rate will be reduced again to 4.4 percent. Through House Bill 1430, Act 196, the state’s unemployment insurance tax wage base will be $7,000, provided the unemployment trust fund balance is equal to or exceeds $600 million. Additionally, the new unemployment insurance tax rate will be reduced to 1.9 percent, down from 2.9 percent.
California Tax Changes Effective January 1, 2024
California funds the state’s disability insurance program through a payroll tax of 1.1 percent on wages up to $153,164 in 2023. In 2024, this wage ceiling will be lifted, subjecting all wage income to the payroll tax. This means that the state’s top marginal individual income tax rate on wage income (not all income) will become 14.4 percent.
Colorado Tax Changes Effective January 1, 2024
Through HB23B-1002 the state’s earned income tax credit (EITC) will increase from 25 percent to 50 percent of the federal credit for the 2023-2024 fiscal year.
In 2020, through Senate Bill 20-207, Colorado committed to increasing the state’s unemployment insurance wage base to $30,600 by 2026. The legislation sets the 2024 wage base at $23,800.
Connecticut Tax Changes Effective January 1, 2024
Prior to 2018, pass-through entities were not subject to entity-level tax in the state as income was realized by the entity’s owners. However, in 2018, the state opted to institute the pass-through entity tax (PTET), which created a tax at the entity level with two base options. This lowered the federal taxable income of the entity’s owners as the PTET was an entity expense and not subject to the new cap on state and local tax deductions under the individual income tax. Beginning in 2024, however, this regime will become elective, allowing taxpayers the freedom to determine in which years to opt for the PTET. Furthermore, only one base will be available for computing the tax. Previously, pass-through entities subject to PTET could carry forward net operating losses until fully used. This provision was not retained in the PTET update.
The state will also deliver relief to some individual taxpayers. In 2024, the state’s 3 percent bracket will be reduced to 2 percent. Similarly, the 5 percent bracket will be reduced to 4.5 percent. This relief is capped for individuals earning $150,000 or more, or married couples earning $300,000 or more. All other rates remain unchanged, including the top marginal rate. The biennium budget also raises the EITC to 40 percent of the federal credit, up from 30.5 percent, and seniors will benefit from expanded exemptions for certain pensions and annuity earnings.
In 2021, House Bill 6633 became law and raised the 2024 unemployment insurance tax wage base from $15,000 to $25,000. After 2024, the wage base will be indexed for inflation.
Delaware Tax Changes Effective January 1, 2024
House Bill 236 extends the one-year special unemployment insurance tax rates for another year. Therefore, for 2024, the rates will range from 0.1 percent to 5.4 percent.
Georgia Tax Changes Effective January 1, 2024
Georgia joins a growing number of states that have either adopted or are considering a flat tax. In 2024, the Peach State will collapse its six individual income tax brackets into one at a rate of 5.49 percent, per legislation signed by Governor Kemp in 2022. At present, and subject to statutory delays, this rate could be reduced by 0.1 percent each year until it reaches 4.99 percent. However, the governor and state lawmakers have signaled a willingness to consider further reducing the 2024 rate to 5.39 percent, allowing the state to reach the intended target by 2028, one year ahead of schedule.
Hawaii Tax Changes Effective January 1, 2024
Hawaii will impose a 70 percent tax on the wholesale price of all e-cigarette, e-liquid, and other electronic smoking devices.
Indiana Tax Changes Effective January 1, 2024
House Bill 1001 accelerates the state’s previously enacted rate cuts by reducing the individual income tax rate from 3.15 percent to 3.05 percent in 2024. The same law also repealed associated tax triggers and prescribed further rate reductions to 3.0 percent in 2025, 2.95 percent in 2026, and 2.9 percent in 2027 and beyond.
Iowa Tax Changes Effective January 1, 2024
Iowa continues its trend of tax relief. Per the contingent flat tax plan for corporate taxpayers, in 2024, the corporate tax rate is set to be 5.5 percent on income under $100,000 and 7.1 percent on income above $100,000.
For individual taxpayers, the state continues its march to a flat income tax rate of 3.9 percent by 2026. In 2024, the top marginal tax rate will be 5.7 percent.
Kansas Tax Changes Effective January 1, 2024
In 2022, Kansas lawmakers authorized the Department of Revenue to reduce the corporate income tax rate provided certain conditions were met. This occurred in 2023 and the Secretary of Revenue has reduced the corporate income tax rate from 4 percent to 3.5 percent beginning in January 2024. The surtax rate (3 percent), which applies to corporate income over $50,000, remains unchanged. With this change, the overall combined rate is reduced from 7 percent to 6.5 percent.
H.B. 2106 continues the phase-down of the state's sales tax on groceries. The rate decreases from 4 percent to 2 percent on January 1, 2024, and is set to be eliminated on January 1, 2025.
Kentucky Tax Changes Effective January 1, 2024
In February 2023, Kentucky enacted House Bill 1, which reduced the state’s flat income tax rate from 4.5 percent to 4.0 percent, effective in 2024. This codified a reduction that was triggered per conditions established in 2022 (House Bill 8).
KRS 138.488 imposes a new excise tax on electric vehicle power to charge electric vehicles in the state at a rate of $0.03 per kilowatt hour. Additionally, the legislation establishes an electric vehicle owner registration fee.
Louisiana Tax Changes Effective January 1, 2024
Louisiana lawmakers repealed the state’s throwout rule, ending the taxation of so-called “nowhere income.” Now, Maine remains the only state that maintains this inefficient and uncompetitive tax.
Prior to 2024, the Louisiana Department of Revenue was required to provide taxpayers the opportunity to pay state and/or local sales taxes through an electronic form, known as the Parish E-file System. However, effective January 1, 2024, H.B. 558 (Act 375) establishes that the Uniform Local Sales Tax Board is responsible for the oversight of the electronic filing system. This system will only be available until 2026, by which time the law requires the certification of a new system.
Maine Tax Changes Effective January 1, 2024
Currently, the state offers a $300 dependent exemption tax credit. Beginning in 2024, per L.D. 258, this credit will become refundable.
Additionally, the revised statute for taxes on tobacco products takes effect and imposes a tax, equal to 43 percent of the cost price, on all tobacco products (unless taxed by another provision of the statute).
Massachusetts Tax Changes Effective January 1, 2024
On October 4, 2023, Governor Healey signed H. 4104 which requires taxpayers to use the same filing status on both state and federal income tax returns. This was done, in part, to restrict avoidance of the state’s surtax of 4 percent on incomes exceeding $1 million. In years past, married taxpayers could opt to file jointly on their federal tax return and individually on the state return, which allowed some individuals to avoid paying surtax. The state also passed a tax reform package that was largely retroactive to 2023 but included a stepped increase in the child and dependent tax credit, from $330 to $440, in 2024.
Michigan Tax Changes Effective January 1, 2024
In 2015, Michigan amended the state’s Income Tax Act and instituted automatic triggers that would reduce the flat individual income tax rate if certain economic factors were met. In 2023, these triggers were satisfied, and the rate was reduced to 4.05 percent. However, pursuant to an Attorney General opinion concluding (controversially) that this reduction was temporary, the rate will revert to 4.25 percent in 2024.
The Wolverine State will also expand its EITC from 6 to 30 percent of the federal credit.
Minnesota Tax Changes Effective January 1, 2024
Beginning in 2024, Minnesota will levy a 1 percent tax on the net investment income of individuals, estates, and trusts with more than $1 million of net investment income in the year. For political contributions made after January 1, 2024, the state’s refund has been raised to $75 for single filers and $150 for joint filers.
Mississippi Tax Changes Effective January 1, 2024
The state adopted a single rate for individual tax purposes on income exceeding $10,000. In 2024, this rate is set to be reduced to 4.7 percent, down from the initial rate of 5 percent established in 2023.
Missouri Tax Changes Effective January 1, 2024
In July 2023, Governor Parson signed Senate Bill 190 which effectively exempts Social Security payments from the state income tax by removing the income threshold for deductibility. As a result, federal Social Security payments will not be subject to taxation.
For 2024, the top individual income tax rate will be reduced to 4.8 percent, down from 4.95 percent.
Montana Tax Changes Effective January 1, 2024
In 2021, Montana passed Senate Bill 399 which made several changes to the state’s tax code effective in 2024. The law consolidated the state’s seven tax brackets for individual income into two and reduced the top marginal rate from 6.75 percent to 6.5 percent. In 2023, the legislature further reduced this rate to 5.9 percent. Additionally, individual taxpayers will be required to use the same filing status on both federal and state returns.
Montana will also begin taxing capital gains income at lower rates than ordinary income. Capital gains will now be taxed at rates of either 3 percent or 4.1 percent.
Nebraska Tax Changes Effective January 1, 2024
In recent years, Nebraska has made a concerted effort to make competitive, pro-growth, tax reform a priority. This continued in 2023 as the state accelerated previously enacted cuts to both the individual and corporate tax rates, reducing the top marginal tax rate earlier than expected.
The state continues to move toward a flat corporate income tax rate of 3.99 percent by 2027. In 2024, the top marginal tax rate will be reduced from 7.25 percent to 5.84 percent on all income above $100,000.
For individual taxpayers, the state hopes to reduce the top rate to 3.99 percent by 2027. In 2024, this rate will be 5.84 percent, a target reached three years earlier than anticipated.
New Hampshire Tax Changes Effective January 1, 2024
Through S.B. 189, lawmakers have decoupled the state’s tax code from the federal business net interest limitation under IRC § 163(j) by allowing businesses to fully deduct interest expenses in the year incurred. Further, New Hampshire will allow taxpayers to deduct, over three years (in equal parts), any carryforwards of business interest expenses that were previously disallowed.
The state’s budget (H.B. 2) was enacted in June 2023 and accelerates the phaseout of the tax on interest and dividends income, which is now set to be eliminated in 2025, rather than 2027. In 2024, the rate will be 3 percent, down from 4 percent.
New Jersey Tax Changes Effective January 1, 2024
The Garden State’s business tax surcharge of 2.5 percent on business income over $1 million is set to expire in 2024. This will reduce the top marginal corporate tax rate to 9 percent, down from a nation’s-highest 11.5 percent top rate.
North Carolina Tax Changes Effective January 1, 2024
The state’s budget, Session Law 2023-134, sets the individual income tax rate at 4.5 percent for 2024, down from 4.75 percent. This will be further reduced in future years subject to revenue targets. The legislation also extends sales and use tax exemptions for commercial aviation fuel and retail sales to professional motorsports teams that were set to expire in 2024.
Ohio Tax Changes Effective January 1, 2024
The biennial budget, signed in July 2023, consolidates the top two marginal tax rates for individual income into one and sets the rate at 3.5 percent.
Additionally, the state’s commercial activity tax (CAT), a gross receipts tax, will undergo some reforms: starting in January, the gross receipts threshold will rise from $1 million to $3 million. If a business entity’s gross receipts are less than the new threshold, those receipts will be exempt from the CAT. The CAT annual minimum tax was also eliminated.
Oregon Tax Changes Effective January 1, 2024
New employers in Oregon will face a higher unemployment insurance tax rate in 2024, with the new employer rate rising from 2.1 percent to 2.4 percent. In addition, the wage base has also been increased to $52,800, up from $50,900.
The excise tax on motor fuel will increase from $.38 to $.40 on January 1, 2024.
Pennsylvania Tax Changes Effective January 1, 2024
In 2024, the state’s corporate income tax rate will be reduced to 8.49 percent, down from 8.99 percent.
Some homeowners and renters in the Keystone State are eligible for the Property/Rent Rebate Program. Beginning in 2024, the maximum standard rebate will increase to $1,000, up from $650. Additionally, the income limit for each rebate will rise to $45,000.
Rhode Island Tax Changes Effective January 1, 2024
Rhode Islanders will see an increased state EITC, which will be 16 percent of the federal credit, up from 15 percent most recently and 10 percent as of 2015.
South Carolina Tax Changes Effective January 1, 2024
In 2024, the Palmetto State will reduce its top individual income tax rate from 6.5 percent to 6.4 percent. The state aims to reduce this rate further to 6 percent, subject to revenue triggers.
Texas Tax Changes Effective January 1, 2024
By approving Proposition 4, Texas voters raised the homestead exemption from $40,000 to $100,000. Through what is known as “compression,” state funds will be used to buy down local property tax rates.
The “no tax due” threshold for the state franchise tax will double, which means that a taxable entity that generates less than $2.47 million in total annual revenue will not owe the franchise tax, or be required to file a “no tax due report.”
Utah Tax Changes Effective January 1, 2024
Utah is increasing the statewide motor fuel excise tax rate from $.345 to $.365.
Vermont Tax Changes Effective January 1, 2024
The 2024 unemployment insurance tax wage base will rise to $14,300, up from $13,500.
Wisconsin Tax Changes Effective January 1, 2024
The Badger State has repealed the tangible personal property tax, effective January 1, 2024. The state had previously exempted the majority of personal property from taxation but will now complete the repeal.
Wyoming Tax Changes Effective January 1, 2024
Wyoming’s unemployment insurance tax wage base will rise to $30,900 in 2024, up from $29,100.
Notable Changes Retroactive to 2023
Many states adopted tax changes that were retroactive to either January or July of 2023, or, occasionally, to some other date. Most of these were captured in our update on tax changes taking effect July 1, 2023, which also noted changes as of that date that were retroactive to earlier in the year. To this, however, can be added several additional tax changes adopted in 2023 with effective dates prior to 2024.
Colorado citizens voted down Proposition HH in November 2023, prompting the governor to call a special legislative session to address the impending statewide increases in property taxes. That session yielded SB23B-001, which reduces the assessment on residential property from 6.765 percent to 6.7 percent and increases the exemption on a home’s value from $15,000 to $55,000. The legislation continues to require the state to backfill lost revenue to local governments resulting from property tax relief.
The provisions of SB23B-001 are limited to the 2023 property tax year. However, HB23B-1003, also enacted during the special session, establishes a Property Tax Task Force that is charged with studying and recommending to the governor and the legislature, by March 2024, a means of attaining permanent and sustainable property tax relief.
Florida passed a tax reform package that includes a reduction in the tax rate on business rent from 5.5 percent to 4.5 percent, effective December 1, 2023.
The state’s unemployment insurance tax administrative assessment for all experience-rated employers is set to expire in 2027. However, for 2024 through 2026, Senate Bill 160 sets the assessment at a rate of 0.06 percent.
Senate Bill 2, enacted in February 2023, retroactively allows pass-through entities to elect to pay tax at the entity level based on each owner’s aggregate share of adjusted gross income. This gives pass-through entity owners the ability to work around the federal cap on the deduction for state and local taxes paid.
HB 1499, signed into law as PL 239, makes several notable property tax changes. First, it increases the supplemental homestead deduction. The standard deduction will be fixed at $48,000, and the supplemental deduction, which applies to the net assessed value after the application of the standard deduction, will be increased from 35 to 40 percent in 2024. Second, the bill caps the maximum levy growth quotient at 4 percent in 2024.
Effective August 1, 2023, the state updated its economic nexus thresholds for marketplace facilitators. Through H.B. 171 (Act 15), the state removed the 200 transactions threshold and changed the dollar threshold from $100,000 in gross sales to retail sales, thereby excluding wholesale and resale transactions.
The state passed a tax reform package that is largely retroactive to January 2023 and does the following: (1) raises the estate tax exemption from $1 million to $2 million via a credit, (2) reduces the short-term capital gains tax from 12 to 8.5 percent, (3) increases the child and dependent tax credit from $180 to $330 for 2023 and $440 for the 2024 tax year, and (4) expands the state EITC from 30 to 40 percent of the federal credit.
State income tax reductions for middle-income earners that were scheduled to be implemented between 2018 and 2025 were accelerated to 2023.
Stay informed on the tax policies impacting you.
Subscribe to get insights from our trusted experts delivered straight to your inbox.
Subscribe