22 December 2025 Many states have lowered their personal income tax rates in 2026 Employees in as many as 10 states could see reduced state income tax withholding rates in 2026, reflecting a wave of tax cuts enacted by legislatures as part of broader economic growth and competitiveness strategies. In several cases, the 2026 reductions are not newly adopted but stem from laws passed in prior years that authorize phased or incremental decreases in personal income tax rates over two or more years. As a result, withholding tables may change automatically as these lower rates take effect. Employers may want to proactively notify employees in affected states about the potential reduction in withholding and encourage them to review and, if appropriate, update their state withholding allowance certificates to ensure their payroll withholding aligns with their expected state income tax liability. The following chart provides details about the 10 states with lowered personal income tax rates in 2026 and the impact on the income tax withholding rates. State | Tax rate 2025 | Tax rate 2026 | Tax law details | 2026 withholding formula* | Georgia, H.B. 111 | 5.19% | 5.09% | H.B. 111 lowered the tax rate from 5.39% to 5.19% retroactive to January 1, 2025; the tax is further lowered by 0.10% annually beginning on January 1, 2026, until the rate reaches 4.99%, provided that such annual reductions in the tax rate are subject to delays based on revenue goals. | Not yet available | Indiana, H.B. 1001; S.B. 41 | 3.00% | 2.95% | H.B. 1001, enacted in 2023, lowered the tax rate starting in 2024 with additional tax cuts each year until the rate reaches 2.95% in 2026 and 2.90% in 2027. S.B. 41 further lowers the tax rate in future years if revenue goals are met. | Department Notice #1 (the flat withholding tax rate is 2.95%) | Kentucky, H.B. 1 | 4.00% | 3.50% | Effective January 1, 2026, H.B. 1 lowers the state's income tax rate from 4.0% to 3.5%. In subsequent years, the legislature may further reduce the income tax rate to zero if budget requirements are met. | 2026 Kentucky Withholding Tax Formula (the flat withholding tax rate is 3.5%) | Mississippi, H.B. 1 | 4.40% | 4.00% | H.B. 1 lowers the personal income tax rates in tax years 2026 through 2030 and provides for a possible total phase out of the income tax after 2030 if revenue goals are met. The tax rate for 2026 is 4.00% (3.75% for 2027, 3.5% for 2028, 3.25% for 2029 and 3.0% for 2030). | Computer Payroll Accounting (the flat withholding tax rate is 4.00%) | Montana, H.B. 337 | 5.90% | 5.65% | Beginning January 1, 2026, the highest marginal tax rate decreases from 5.9% to 5.65%, and the 4.7% lower rate applies to income up to $95,000 for joint filers, $71,250 for head of household, and $47,500 for all other statuses. Additionally, recent federal legislation changed the standard deductions amounts, which affect Montana taxable income. The withholding tax tables were updated to also reflect these changes. | Employer and Information Agent Guide (the highest withholding tax rate is 5.65%) | Nebraska, LB 754 | 5.20% | 4.55% | L.B. 754, enacted in 2023, gradually lowers the state's income tax rate for the fourth and third brackets. Effective January 1, 2026, the rate for the third and fourth brackets is reduced to 4.55% (3.99% in 2027). | 2026 Nebraska Circular EN (the withholding tax rate is 4.21% for the third bracket and 4.35% for the fourth bracket) | North Carolina, H.B. 259 | 4.25% | 3.99% | H.B. 259, enacted in 2023, gradually lowers the tax rate for years 2024 to 2026. The tax rate is 3.99% in 2026. | 2026 Income Tax Withholding Tables and Instructions for Employers (the flat withholding tax rate is 4.09%) | Ohio, H.B. 96 | 3.125% | 2.75% | H.B. 96, enacted in 2025, lowers the top personal income tax rate from 3.5% to 3.125% retroactive to January 1, 2025. Effective January 1, 2026, a flat personal income tax rate of 2.75% applies to income over $26,050. | Not yet available | Oklahoma, H.B. 2764 | 4.75% | 4.50% | H.B. 2764 cuts the top marginal personal income tax rate from 4.75% to 4.5% and restructures the state's six income tax brackets into three. Additionally, the law adds a rate reduction trigger based on total collections. This trigger could reduce individual income tax rates by 0.25% across all brackets starting in 2027. | 2026 Oklahoma Income Tax Withholding Tables for 2026 (the highest withholding tax rate is 4.5%) | South Carolina, H. 4025 | 6.0% | 6.0% | Although H. 4025 lowered the state tax rate from 6.2% to 6.0%, the South Carolina withholding formula was not revised for 2025. The reduction to 6.0% is reflected in the 2026 withholding formula. | Formula For Computing South Carolina 2026 Withholding Tax (the highest withholding tax rate is 6.0%) |
*Note that frequently the income tax withholding rates do not align with the personal income tax rates under the law. Most states give their revenue departments the flexibility of adjusting income tax withholding rates and employers can be penalized for failure to use the applicable withholding tax rates. | * * * * * * * * * * | | Contact Information | For additional information concerning this Alert, please contact: Workforce Tax Services - Employment Tax Advisory Services | | Published by NTD’s Tax Technical Knowledge Services group; Andrea Ben-Yosef, legal editor |
Document ID: 2025-2591 |
