State Income Tax Updates!

As we dive into the new year, the team—David Darby, Kevin Roche, CFP?, and I—are here to help you navigate the ever-changing tax landscape. Whether it’s Federal or State Income Taxes, understanding these updates is key to optimizing your finances. Here’s a comprehensive look at what’s happening across the country.

States with No Income Tax

Did you know there are states where residents enjoy no state income tax? Here’s the list:

?? Alaska ?? Florida ?? Nevada ?? South Dakota ?? Tennessee ?? Texas ?? Wyoming ?? Washington* ?? New Hampshire*

What’s the Catch for Washington and New Hampshire?

• Washington: While there’s no traditional income tax, a Long-Term Capital Gains Tax applies. Income beyond ~$263,000 is taxed at 7%, eventually dropping to 4.41%. Seattle may also introduce a local tax—stay tuned!
• New Hampshire: No tax on W-2 earnings, but interest and dividends are taxed. However, this Interest and Dividends Tax is set to be fully repealed in 2025.

States with No Tax on Traditional Retirement Income

For retirees, these states provide relief by exempting income from Traditional retirement accounts:

?? Alaska ?? Florida ?? Nevada ?? South Dakota ?? Tennessee ?? Texas ?? Wyoming ?? Washington ?? New Hampshire ?? Illinois* ?? Iowa* ?? Mississippi* ?? Pennsylvania*

Special Rules Apply

• Iowa: Retirement income for those 55+ qualifies for tax exclusion.
• Early Withdrawals: Still taxable in most states, so plan carefully.

States That Tax Social Security

Rather than listing the 41 states that don’t tax Social Security, here are the 9 that do:

?? Colorado ?? Connecticut ?? Minnesota ?? Montana ?? New Mexico ?? Rhode Island ?? Vermont ?? West Virginia*

West Virginia Is Changing

By 2026, West Virginia plans to fully eliminate its Social Security tax, providing relief for retirees.

Major Tax Updates for 2025

Several states are rolling out significant tax reforms in the coming year. Here are the highlights:

• Hawaii: Expanded tax brackets, with rates ranging from 1.4% to 11%, and increased standard deductions.
• Indiana: Flat tax rate reduced to 3%, with a target of 2.9% by 2027.
• Louisiana: Introducing a 3% flat rate for individuals and simplifying corporate taxes.
• North Carolina: Individual tax rate reduced to 4.5%, with future reductions planned.

Additional updates in Iowa, Michigan, Mississippi, Missouri, Nebraska, Rhode Island, South Carolina, and more.

Retroactive Tax Changes to Watch

A few states have enacted changes that could impact your 2024 filings:

• Alabama: Expanded tax-free overtime provisions for salaried non-exempt employees.
• Arkansas: Top individual and corporate tax rates retroactively reduced to 3.9% and 4.3%, respectively.
• Kansas: Simplified brackets, reduced top rates, and increased standard deductions.

What Does This Mean for You?

Tax reforms can impact your finances in surprising ways, whether through lowered rates, increased deductions, or new tax exemptions. Now is the perfect time to review your strategy and maximize your opportunities for savings.

?? Stay tuned for detailed breakdowns, planning tips, and insights to help you make the most of the new tax laws.

Here’s to a financially savvy and successful 2025!