While federal brackets inflated modestly, the more interesting 2026 story is at the state level. Five states cut individual income tax rates effective this tax year, continuing a multi-year wave of flattening and reduction across the South and Midwest. Residents of each will see it directly in withholding from their first January checks.
But rate cuts make headlines while the arithmetic that matters — effective rate at your salary, after deductions and local add-ons — rarely does. This guide covers each cut with before/after context, then places all five against the nine no-tax states, and finishes with the comparison framework that actually answers “where does my salary go furthest?”
North Carolina: 3.99% flat
North Carolina’s decade-long phase-down continued, landing the flat rate at 3.99% for 2026 — a glide from 5.25% in 2022 and 5.499% in 2015. The state is now essentially at its statutory destination: a flat rate below 4% with no brackets.
For a single filer earning $75,000, the 2026 rate saves roughly $150–300 per year versus 2025 depending on the standard deduction mechanics. NC’s state standard deduction is $12,750 for single filers — so taxable state income on that salary is about $62,250 and the annual state tax is roughly $2,475.
Ohio: flat 2.75% above $26,050
Ohio collapsed its graduated schedule — which topped out at 3.5% — into a single 2.75% rate on taxable income above $26,050, with income below that threshold untaxed at the state level. This is the most structural change of the five: an entire bracket schedule replaced by one rate with a large zero band.
Two Ohio caveats. First, school district income taxes — which most Ohio districts levy, typically 0.5–2.0% — are completely unaffected. Second, Ohio municipalities levy their own city income taxes, often 1.5–2.5%, which frequently exceed the state tax itself. The state cut is real, but an Ohioan’s total income tax bill can still rival a graduated state’s.
Kentucky: 3.5% flat
Kentucky moved to a flat 3.5% for 2026, continuing its own glide path (4.5% in 2024, 4.0% in 2025). One quirk worth knowing: Kentucky’s standard deduction of $3,360 is not doubled for joint filers, unlike most states. At household incomes the joint-return math is therefore less favorable than the headline rate suggests — the take-home calculator applies this automatically.
Indiana: 2.95%
Indiana’s flat rate dropped to 2.95%. The catch is structural: county income taxes, which the large majority of Indiana counties levy, sit on top and commonly run 1.5–3.0% — often exceeding the state rate itself. A Marion County resident’s combined marginal rate is close to 4.5%, not the 2.95% on the state headline.
Mississippi: flat 4.0%
Mississippi consolidated its two-bracket structure (4.4% and 4.7% in recent years) into a flat 4.0% for 2026, eliminating the higher tier entirely. The practical effect is largest for above-average earners who previously lived in the top bracket.
Before/after at $75,000 single
| State | 2025 structure | 2026 structure | Approx. annual change |
|---|---|---|---|
| North Carolina | 4.25% flat | 3.99% flat | ≈ −$190 |
| Ohio | 2.75% + brackets to 3.5% | 2.75% above $26,050 | ≈ −$100–250 |
| Kentucky | 4.0% flat | 3.5% flat | ≈ −$375 |
| Indiana | 3.0% flat | 2.95% flat | ≈ −$40 (+county) |
| Mississippi | 4.4/4.7% two-tier | 4.0% flat | ≈ −$300–520 |
Figures are state-level only, before local taxes, using each state’s standard deduction at a $75,000 single salary. Your exact number depends on deductions and locality — run it through the calculator rather than quoting this table.
The nine no-tax states still dominate
Rate cuts shrink the gap, but the nine states with no wage income tax — Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming — still hold a commanding lead. A $75,000 single filer keeps roughly $4,000–4,500 more per year in Texas than in a mid-rate graduated state; Kentucky’s entire 2026 cut recovers less than a tenth of that gap.
That framing matters for the decisions where state tax actually moves: comparing job offers across states, or evaluating a relocation. A salary that looks equal can differ by hundreds of dollars per month in net pay purely from the state line on your paycheck.
The comparison that matters
Never compare rate tables. Compare net pay at your salary, filing status and locality. Three traps make headline comparisons misleading:
- Local taxes: NYC adds a resident income tax up to 3.876%; Ohio school districts and Pennsylvania locals add 1–3%; Maryland counties add up to 3.2%.
- Deduction shapes: Kentucky doesn’t double its deduction for joint filers; Ohio’s zero band below $26,050 shields low earners more than a flat rate suggests.
- What’s excluded: New Hampshire and Washington tax investment income but not wages — a no-tax state for a W-2 earner, not for a retiree with dividends.
The state comparison tool ranks all 51 jurisdictions by tax at your exact income — that ranking, refreshed for 2026, is the number worth quoting.
Bottom line
The 2026 state cuts are real money — a few hundred dollars a year for most affected earners — and withholding reflects them from January. But they are second-order compared to the no-tax gap and to local taxes that state legislatures cannot cut for you. If you are deciding between states, run both salaries through the same calculator with the locality included; if you are staying put, enjoy the modest raise your state just handed you.
What to do with your state’s cut (and what not to do)
A rate cut of $200–500 a year is real but modest — the equivalent of one car payment. Here is how to use it well, and the expensive mistakes to avoid.
Recalibrate, then redirect. Once your January checks settle at the new withholding, you will know your actual annual gain to within a few dollars. Redirect that exact amount — to a 401(k) deferral bump, an HSA, or a dedicated savings transfer — before it dissolves into spending. A 1% deferral increase on a $75,000 salary is $750 a year; Kentucky’s entire cut is about half that. Paired together they are meaningful; alone, each is forgettable.
Do not compare offers using state rate tables. The expensive version of this mistake looks like a job offer in Indianapolis (2.95% headline) rejected in favor of one in Austin (0% headline) without checking that the Indiana offer is $8,000 higher — which would more than cover the difference even with county tax. Always convert both offers to net pay at your filing status, including locality, and compare those two numbers.
Re-examine your locality, not just your state. State legislatures cut what they control; cities and school districts raise what they control. If you live in an Ohio school district or an Indiana county that raised its local rate for 2026, part of your state cut was already recaptured. Check your pay stub’s local line against last year’s — the nets may be closer than the headlines suggested.
If you itemize, the SALT cap changes the math again. State income tax is deductible on your federal return if you itemize, but only within the $10,000 combined SALT cap. For homeowners in cut states with high property taxes, the state income tax cut may simply move deduction room around rather than changing total tax much. Renters and standard-deduction filers keep the full benefit.
Watch the trajectory, not just the rate. North Carolina’s cut is the last scheduled step of a multi-year plan; Kentucky’s legislature has signaled further movement. A state on a downward glide path compounds its advantage over a static one. If you are choosing where to locate a business or take a multi-year role, the 2027–2028 direction of your state’s rates is part of the compensation package.
State tax cuts arrive quietly — there is no memo, just a slightly smaller withholding line. The employees who benefit most are the ones who notice the difference, name the amount, and put it to work in January rather than absorbing it by March.
Source: Tax Foundation, “State Individual Income Tax Rates and Brackets, 2026” (as of Jan 1, 2026), which compiles state statutes and revenue department publications.
Sources: IRS Rev. Proc. 2025-32, SSA 2026 COLA fact sheet, Tax Foundation 2026 state tables · Full methodology