Eight states cut income tax rates on Jan. 1.

Eight states lowered individual income tax rates effective Jan. 1, including Indiana, Kentucky, Mississippi, Montana, Nebraska, North Carolina, Ohio and Oklahoma, according to the Tax Foundation. The IRS also released updated federal tax brackets and standard deductions for the 2026 tax year, which apply to returns filed in 2027.

The IRS released updated federal income tax brackets and standard deductions for the 2026 tax year, which will apply to returns filed in 2027. At the same time, eight states implemented reductions in their individual income tax rates effective Jan. 1, according to the Tax Foundation. State officials and analysts cited goals such as boosting competitiveness and increasing residents' take-home pay. Some states have further scheduled rate changes in the coming years. Key changes this year: - Indiana: Flat rate falls to 2.95% from 3%, with a further reduction to 2.9% scheduled for Jan. 1, 2027; legislation also calls for possible gradual reductions to a potential 2.55% beginning in 2030 if revenue thresholds are met. - Kentucky: Flat rate drops to 3.5% from 4%. - Mississippi: Flat rate decreases to 4% from 4.4% as the final step in a multiyear phase-down. - Montana: Top marginal rate falls to 5.65% from 5.9%, with a further reduction to 5.4% planned for 2027; the lower 4.7% rate remains and its bracket is expanded. - Nebraska: Top rate drops to 4.55% from 5.2% as part of an ongoing phase-down toward 3.99% by 2027. - North Carolina: Flat rate falls to 3.99% from 4.25%, marking the final reduction in a multi-year plan. - Ohio: Moves to a flat 2.75% rate from 3.125% on income above $26,050, with no tax on income below that threshold. - Oklahoma: Top rate slides to 4.5% from 4.75% and the state reduced six individual income tax brackets to three. Summary: These state-level rate cuts took effect on Jan. 1 and will influence residents' tax liabilities for the 2026 tax year. The Tax Foundation described the changes as part of broader efforts by states to enhance economic competitiveness. Several of the listed states have additional scheduled reductions in coming years, and federal bracket updates will apply to returns filed in 2027.