2025 is a historic year for state tax reform. Three states eliminated progressive tax systems entirely. One state introduced a groundbreaking 0% first bracket. Five more slashed rates. Here's everything that changed—and what it means for your wallet.
- Iowa residents: Save up to $800/year with new flat tax
- North Dakota: First $48,475 now tax-free (was $0)
- West Virginia: Rates cut 4% across all brackets
- New Hampshire: Fully tax-free for first time ever
The Complete List: 10 Major Reforms
🏆 #1: Iowa - Flat Tax Revolution (SF 2442)
Effective: January 1, 2025
What changed: Eliminated 9-bracket progressive system (3.1% to 5.7%) → Simple 3.8% flat tax
| Income Level | Old System (2024) | New System (2025) | Savings |
|---|---|---|---|
| $50,000 | $2,420 | $1,900 | Save $520 |
| $75,000 | $3,650 | $2,850 | Save $800 |
| $100,000 | $4,900 | $3,800 | Save $1,100 |
Why it matters: Iowa went from complex 9-bracket system to dead-simple flat tax overnight. Anyone can now calculate their Iowa tax in their head.
🏆 #2: Georgia - Flat Tax Transformation (HB 111)
Effective: January 1, 2025
What changed: Eliminated 6-bracket progressive system (1.85% to 5.75%) → 5.19% flat tax (dropping to 4.99% by 2027)
Who benefits:
- High earners ($150k+): Save $1,000-$3,000+/year
- Middle earners ($60k-$120k): Roughly break even, gain simplicity
- Low earners ($30k-$50k): Pay slightly more (~$100-200/year)
Future cuts: Rate drops to 5.09% in 2026, then 4.99% in 2027. Long-term, this becomes one of the lowest flat taxes in the nation.
🏆 #3: Louisiana - Flat Tax Simplification
Effective: January 1, 2025
What changed: Eliminated 3-bracket progressive system (1.85%, 3.5%, 4.25%) → 3.0% flat tax
Tax impact on $75k income:
- 2024 system: $2,700
- 2025 system: $2,250
- Savings: $450/year
Standard deduction increased: $12,500 (single), $25,000 (MFJ) - up from $4,500/$9,000
🚀 #4: North Dakota - Revolutionary 0% Bracket (HB 1158)
Effective: January 1, 2025
What changed: Reduced from 5 brackets to 3 brackets, introduced massive 0% first bracket
New structure:
- $0 - $48,475: 0% tax
- $48,476 - $244,825: 1.95%
- $244,826+: 2.5%
Impact examples:
- $40,000 income: Pay $0 (was ~$1,200) → Save $1,200
- $60,000 income: Pay ~$224 (was ~$2,100) → Save $1,876
- $80,000 income: Pay ~$615 (was ~$2,900) → Save $2,285
Why it matters: North Dakota now has the most generous tax structure for middle-class earners in the entire United States. The 0% bracket is double what most states offer.
#5: New Hampshire - Fully Tax-Free!
Effective: January 1, 2025
What changed: Eliminated 5% tax on interest and dividends
History: NH never taxed wages, but did tax investment income. As of 2025, all income is tax-free.
Trade-off: NH has second-highest property taxes in the US (2.05% average). Great for renters and those with modest homes, expensive for homeowners with large properties.
#6: Montana - Major Simplification
Effective: January 1, 2025
What changed: Reduced from 7 brackets to just 2 brackets
New structure:
- $0 - $21,100: 4.7%
- $21,101+: 5.9%
Future cuts: Legislation passed (HB 337) will reduce top rate to 5.4% in 2026-2027.
#7: New Mexico - Middle-Class Relief (HB 252)
Effective: January 1, 2025
What changed: Added new 4.3% bracket, lowered bottom rate from 1.7% to 1.5%
New brackets:
- 1.5%, 3.2%, 4.3% (NEW), 4.7%, 4.9%, 5.9%
Why it matters: Unlike most states that are flattening, New Mexico went the opposite direction—adding complexity to provide targeted middle-class relief.
#8: Maryland - New Top Brackets
Effective: January 1, 2025
What changed: Added 2 new top brackets (6.25% and 6.5%) + 2% capital gains surtax
New top brackets:
- $500k - $1M: 6.25% (NEW)
- $1M+: 6.5% (NEW)
- Plus: 2% additional on capital gains for AGI >$350k
#9: West Virginia - 4% Rate Cut (SB 2033)
Effective: January 1, 2025
What changed: Reduced all rates by approximately 4%
| Bracket | Old Rate | New Rate |
|---|---|---|
| Bottom bracket | 2.36% | 2.22% |
| Top bracket | 5.12% | 4.82% |
Savings on $75k: ~$150-200/year
#10: Nebraska - Significant Rate Reduction (LB 754)
Effective: January 1, 2025
What changed: Top rate reduced from 5.84% to 5.20%
Future cuts:
- 2026: 4.55%
- 2027: 3.99%
Plus: 5 More Notable Changes
Missouri: Top Rate Cut
4.8% → 4.7%. Plus new 100% capital gains exemption.
Kansas: Bracket Consolidation (SB 1)
3 brackets → 2 brackets. Top rate reduced to 5.58%.
California: 3% Inflation Adjustment
All bracket thresholds increased by 3% for inflation. Same rates, just shifted up.
South Carolina: Mid-Year Cut Coming
Top rate drops from 6.2% to 6% on July 1, 2025.
Kentucky: 2026 Cut Scheduled
4.0% flat tax will drop to 3.5% in 2026.
The Big Trends: What This All Means
1. Flat Tax Movement is Accelerating
3 states went flat in 2025 alone. Iowa, Georgia, and Louisiana abandoned progressive systems. More states (West Virginia, Missouri) are considering it. Voters want simplicity.
2. Rate Competition is Heating Up
States are competing to have the lowest rates. North Dakota's 2.5%, Louisiana/Indiana's 3.0%, and Arizona's 2.5% are in a race to the bottom. Good for taxpayers!
3. Zero-Bracket Innovations
North Dakota's $48k zero bracket is revolutionary. Arkansas also has a 0% first bracket. Expect other states to copy this popular reform.
4. High-Tax States Going Higher
While most states cut taxes, Maryland and DC raised rates on high earners. The divide between high-tax and low-tax states is widening.
5. Multi-Year Phase-Ins
Nebraska, Kentucky, Montana all have scheduled future cuts. States are committing to long-term tax reductions rather than one-time changes.
What to Do About These Changes
If You Live in a Reform State:
- Iowa, Georgia, Louisiana residents: Adjust your W-4! You're likely over-withholding now. Update it to see the savings in each paycheck.
- North Dakota residents: If you earn under $48k, update your withholding to $0 for state tax
- New Hampshire residents: If you were paying on dividends, stop withholding
- West Virginia, Nebraska residents: Modest savings, but adjust withholding to avoid overpaying
If You're Considering Moving:
- 2025 is the year to move. Tax differences between states are at an all-time high.
- Iowa is a standout: Massive tax cut + low cost of living = great for middle-class families
- North Dakota for under $50k earners: Unbeatable for lower-income workers
- Louisiana for simplicity: 3% flat tax, no complexity
Future Reforms to Watch (2026-2027)
States considering major changes:
- West Virginia: Bill proposed to go full flat tax by 2027
- Missouri: Flat 4.5% tax bill in committee
- Montana: May go flat after 2027 rate reduction
- South Carolina: Multiple bills for further cuts or flat tax
- Arizona: Proposal to drop from 2.5% to 2.0%
Watch for: More states copying North Dakota's 0% bracket model. It's politically popular and benefits middle-class voters—expect to see this spread.
How We Verified This Data
All reforms verified from official state sources:
- Iowa: Senate File 2442 (enacted May 2024)
- Georgia: House Bill 111 (enacted 2024)
- North Dakota: House Bill 1158 (2023 legislative session)
- Louisiana: State Legislature records
- New Hampshire: Legislative records (repeal effective 2025)
- Montana, New Mexico, Maryland, West Virginia, Nebraska: Official state tax department sources
Last verified: November 12, 2025
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- Iowa Tax Calculator - Try the new 3.8% flat tax
- North Dakota Calculator - See the 0% bracket