Louisiana has just revamped its tax system and the changes that kick in as of 2025 could significantly impact residents' wallets.
Led by Gov. Jeff Landry, this comprehensive reform is designed to simplify the state’s tax code and make Louisiana more competitive for businesses and families.
In an end-of-session address, Landry described the tax changes as historic, adding, “Today we have made generational change in this state. We now stand at the threshold of a new era for Louisiana.”
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Here’s more of what you need to know.
New Louisiana flat tax rate
At the heart of this Louisiana tax reform is a flat 3% income tax rate, which replaces a tiered system with often complicated calculations.
This change could be welcome news for many residents.
- For example, according to an analysis by RESET Louisiana, if you are a Louisiana resident earning between $30,000 and $40,000 a year, you could save around $330 on your state taxes.
- If your income falls between $70,000 and $80,000, expect savings of about $550.
- And for those making over $140,000? You might find an extra $1,000 in your pocket when it's time to file your state return.
And there’s more. The state standard deduction has nearly tripled for individuals and doubled for older adults, meaning some households with low income may not have to pay state income tax.
- Before the bill, Louisiana's standard deduction was $4,500 for single filers and $9,000 for joint filers.
- Next year, those amounts jump to $12,500 for single filers and those married filing separately.
- For those married filing jointly, heads of households, and surviving spouses, the standard deduction rises to $25,000 in 2025.
Also, under the new tax reform bill, the retirement income exemption doubles from $6,000 to $12,000 and will be adjusted annually for inflation beginning in 2026.
As a result, more older adults in the state may be able to keep more of their retirement earnings tax-free.
However, remember that tax cuts like these come with a cost. This tax package offsets some of the cuts with increased state sales tax.
Louisiana sales tax hike
Louisiana will increase its state sales tax rate from 4.45% to 5% for five years beginning Jan. 1, 2025.
According to the Tax Foundation, that makes Louisiana's combined state and local sales tax rate the highest in the nation. (In six years, 2030, the Louisiana state sales tax is scheduled to be reduced to 4.75%.)
As Kiplinger has reported, higher sales taxes generally mean consumers pay more at checkout, potentially reducing disposable income and altering shopping habits.
Critics argue that this sales tax increase places a heavier burden on residents with lower incomes, who spend more of their income on taxable goods and services.
Louisiana corporate tax changes
Meanwhile, businesses weren’t left out of the Louisiana tax cut equation.
- The corporate income tax rate is set to drop to a flat 5.5%, down from a steep 7.5%.
- The corporate franchise tax has also been eliminated for businesses with revenues exceeding $500 million.
Those changes are designed to attract more companies to the Pelican State which some supporters say could lead to job creation and economic growth.
Louisiana income tax: What does this mean for you?
So, what does all this mean for Louisianans?
Potentially More Money in Your Pocket: With lower income taxes, some residents will enjoy increased take-home pay.
Simplified Tax Filing: The flat rate means less time spent figuring out previously complicated state tax brackets.
Higher Prices Ahead: Due to the increased sales tax, prices on goods and services will be slightly higher.
And as Louisiana adapts, stay informed about how these tax changes could affect your finances. If you’re unsure how a higher state standard deduction or flat state tax rate will impact your return, consult a trusted and qualified tax professional.
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