2026 State Tax Changes: What Individuals & Businesses Need To Know

Overview of Upcoming State Tax Changes in 2026

As we approach January 1, 2026, a wave of significant tax reforms is set to take effect across 43 states, highlighting a trend of competition among states to attract residents and businesses with more favorable tax structures. A notable feature of these changes is the reduction in individual income tax rates in eight states, including Georgia, Indiana, and Ohio, which will transition to a single-rate income tax.

Impact of Reduced Income Tax Rates

The reduction of personal income tax rates is a central theme in the tax reforms slated for 2026. Georgia’s rate will drop from 5.19% to 5.09%, while Indiana's rate decreases from 3.00% to 2.95%. Ohio also joins the trend by shifting to a flat rate of 2.75% for non-business income. This effort aims not only to provide immediate financial relief for individuals and families but also to encourage economic growth by enhancing the attractiveness of these states for potential movers and investors.

Changes in Corporate Taxation

Alongside personal income tax reductions, four states—Georgia, Nebraska, North Carolina, and Pennsylvania—will also see cuts in corporate income tax rates. North Carolina's corporate tax rate will decrease from 2.25% to 2%, reflecting a broader initiative to streamline taxation for businesses. These changes make a strong case for business owners to consider relocating to states with lower corporate tax obligations, potentially spurring further economic activity.

Sales and Use Tax Adjustments

Sales tax reforms will vary across states, with each making nuanced adjustments aimed at improving revenue without discouraging spending. For instance, Arkansas is entirely removing its state sales tax on groceries, though local taxes may still apply. Similarly, Illinois will eliminate its statewide grocery sales tax, creating a potential incentive for consumer spending.

Excise Tax Impacts and Property Tax Changes

While most tax changes are favorable, there are notable increases in excise taxes on fuels and tobacco in various states, such as Michigan and Minnesota. These adjustments are often aimed at generating revenue for specific state projects, such as environmental initiatives or public health programs. In contrast, property taxes are being adjusted or relieved in some states, including Georgia and Indiana, indicating a comprehensive approach to tax reform that balances between encouraging residency and maintaining necessary public funding.

Conclusion: A Broader Perspective on Tax Reform

The reforms effective January 1, 2026, represent more than just shifts in numbers; they embody a strategic effort by states to create more competitive tax climates. By reducing personal and corporate tax rates and adjusting other tax measures, these states aim to stimulate growth and attract new residents. Understanding these upcoming changes can empower taxpayers and business owners in their financial planning for the year ahead.