Three states, Kentucky, Mississippi, and Oklahoma, have legislated the end of their income taxes. While other states have repeatedly cut taxes in recent years and their leaders have suggested that the elimination of the tax be the goal, only these three have written the conditions of such an end into law.
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.
Eight U.S. states currently have no state income tax whatsoever: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming. Up until 2025, New Hampshire only taxed interest and dividend income.
Eleven states lowered their income tax rates effective January 1, 2026, continuing a multi-year trend of tax reductions driven largely by Republican-controlled legislatures. The changes affect Georgia, Indiana, Kentucky, Michigan, Mississippi, Montana, Nebraska, North Carolina, Ohio, Oklahoma, and West Virginia.
Eight U.S. states impose no state income tax: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, and Wyoming do not levy income taxes. Washington does not tax income but does tax capital gains of certain high earners.
It's not inherently better, but living in a state with no income tax can be financially advantageous by increasing take-home pay, especially for high earners, retirees, and business owners, as it simplifies taxes and keeps more income for savings or investments. However, these states often compensate with higher sales, property, or excise taxes, meaning the overall tax burden and cost of living (housing, insurance) must be considered, as a lack of income tax doesn't always mean lower overall costs or better public services.
As a result, many could see a bigger tax refund when filing 2025 returns in 2026, experts say. Once 2026 withholdings go into effect, "folks will see slightly larger paychecks," assuming their income stays the same as 2025, said Andrew Lautz, director of tax policy for the Bipartisan Policy Center.
The best states for taxes are often those with no state income tax, like Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming. However, the "best" state depends on your personal situation, as some states compensate with higher sales or property taxes, so you must consider the overall tax burden, including income, property, and sales taxes, for a complete picture.
Harris's tax plan relies on higher taxes on businesses and high earners to raise new revenues as outlined in President Biden's FY 2025 budget with some revisions (to capital gains taxes, as noted), combined with several tax credits. All provisions are modeled as starting in calendar year 2025 unless otherwise noted.
At the end of 2025, the individual tax provisions in the Tax Cuts and Jobs Act (TCJA) expire all at once. Without congressional action, most taxpayers will see a notable tax increase relative to current policy in 2026.
States With the Highest Income Taxes
The states with the highest marginal tax rates include California, Hawaii, New York and the District of Columbia. Here are the states with the top 10 marginal tax rates in the U.S. in 2025: California (13.3%) Hawaii (11%)
Highest taxed states
Some of the major tax changes effective from April 1, 2025, are revised tax slabs, rebate of up to Rs. 60,000, revised ITRU deadlines, calculation of partner's remuneration allowable as a deduction and revised TDS/TCS threshold limits.
President Trump has signed into law the tax and spending “megabill” that largely favors the richest taxpayers and provides working-class Americans with relatively small tax cuts that will in many cases be more than offset by Trump's tariffs.
If the individual tax cuts expire, taxpayers in all income groups would face higher and more complicated taxes. Machinery and equipment expensing is a key provision that, if allowed to expire, would especially harm capital-intensive industries like manufacturing.
To avoid the 22% tax bracket (or any higher bracket), focus on reducing your taxable income through strategies like maxing out 401(k)s and HSAs, deferring bonuses, tax-loss harvesting, smart charitable giving, and strategic asset location, understanding that higher rates only apply to income within that bracket, not your entire income.
Nine U.S. states currently have no state income tax: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming, though Washington taxes some capital gains, and New Hampshire recently repealed its tax on interest/dividends as of 2025. These states often rely on other revenue sources, like higher sales or property taxes, so a lack of income tax doesn't always mean lower overall taxes.
The top 10 low-tax countries in 2025
But how people define “upper class” differs. Some say you'd need to be making twice the median income, or around $167,460. Even more elite are those who find themselves in the top 5 percent of earners. In the U.S., you'd need to be making about $336,000 to find yourself in the top 5 percent, according to Census data.