New State Tax Changes You Need to Know

Federal taxes get a lot of attention — especially before, during, and after tax season. But state taxes sometimes go unnoticed, even though some of the highest taxes people in the U.S. pay are state and local taxes. And although state tax changes might not be on your newsfeed, they can affect your paycheck and how much you pay for everything from groceries to gas and your property.

Here is a summary of some state tax changes for 2023 that you need to know about.

Lower state income tax rates

Several states lowered their income tax rates this year. Even small tax rate reductions can result in significant savings, especially for those who receive traditional paychecks or have taxable income. 

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• Arizona decreased its state income tax rate to a flat 2.5% from a high of 4.5%.
• Idaho changed to a flat state income tax rate of 5.8% (down from 6%).
• Indiana decreased its income tax rate from 3.23% to 3.15%.

Indiana’s income tax cut was part of a $1.1 billion tax package. The state’s income tax rate will continue to fall, incrementally, to 2.9%, by 2027. The tax bill passed in Arizona contained close to $2 billion in tax cuts and Idaho’s historic tax cuts came amid a $900 million state revenue surplus. 

More: These States Have Lower Income Tax Rates This Year

Ohio also recently enacted income tax cuts that will phase in over two years. Beginning this year, the state’s three tax brackets go down to two.

• Ohio taxpayers making less than $26,500 a year will be exempt from income tax. 
• Those earning up to $100,000 a year will be taxed at a 2.75% rate. 
• Taxpayers earning above $100,000 will pay a rate of 3.5%.

For 2023, some other states with lower income tax rates are Iowa, Kentucky, Mississippi, Missouri, Nebraska, New York, and North Carolina. But this is not an exhaustive list, so keep an eye on your state's income tax rates. (For example, Connecticut will implement lower state taxes next year, in 2024.) 

Massachusetts tax on high earners. Although many states are cutting income taxes, Massachusetts' millionaire's tax, enacted last year, became effective at the beginning of this year (January 1, 2023). The tax is an additional 4% on individual earnings over $1 million.

States raising gas taxes 

As often happens, gas tax increases became effective in several states this year as of July 1. That includes but is not limited to California, and Maryland, where residents already deal with expensive gasoline. 

Colorado, Illinois, Indiana, Iowa, Kentucky, Missouri, and Virginia also raised taxes on gasoline on the first of July.

Related: Gas Tax Increases for California, Maryland, and 7 Other States

Tax-free weekends and sales tax holidays 

More than 14 states offer tax-free weekends and sales tax holidays for back-to-school and other shopping during the year. Many of those state sales tax holidays have passed. 

Maryland's week-long tax holiday ran from August 13 to August 20, 2023. However, electronics and school supplies weren't tax-exempt during the tax-free week, unlike some other state sales tax holidays this year.

More: Every 2023 Tax-Free Weekend for Back-to-School Shopping

• Additionally, due to the $1.3 billion tax legislation enacted this year in Florida, Floridians can enjoy tax exemptions on items such as gas stoves, and baby, and toddler necessities. 
• Meanwhile, Virginians, who initially lost their annual tax-free weekend, despite a multi-billion dollar budget surplus saw lawmakers revive the sales tax holiday. The Virginia tax-free weekend for 2023 took place in late October.

Property tax increases and property tax relief 

Many states are experiencing high property tax rates. Kiplinger has reported that in some areas of the U.S., inflation is causing property tax rates to increase to the maximum amount allowed by state law. For example, residents in Michigan are experiencing higher property tax rates, as are homeowners in New York, South Carolina, and Washington.

And while property taxes are rising across much of the country, Pennsylvania extended the deadline to Dec. 31, 2023, for its rent and property tax rebates of up to $975. Those tax rebates are available to eligible older adults 65 and over and for some widows, widowers, and people with disabilities. 

Also, property tax relief through a program called "STAYNJ" is coming for New Jersey homeowners age 65 or older. Eligible homeowners would get a 50% property tax credit under the new plan, which some lawmakers have said doesn't go far enough to help older adults with lower incomes.

Related: Where Inflation is Causing Property Taxes to Increase the Most

2023 state tax rebates

Last year, due mostly to revenue surpluses, more than twenty states sent billions of dollars in special tax rebate or "stimulus" payments to eligible residents. 

Note: If you received a payment from your state in 2022 and filed your 2022 federal tax return, check with your tax preparer to see if you need to file an amended return. Your payment may have mistakenly been reported as taxable income.

More: States Sending Tax Rebate Checks in 2023

• For 2023, several states, including Alabama, Georgia, Montana, New Mexico, and Virginia are issuing tax rebate payments to eligible residents. 
• Montana’s 2023 one-time tax rebates could be up to $2,500. 
• Payment amounts and eligibility criteria differ by state. 

If you believe you are eligible for a payment in these or other states but haven't received one, contact your state's Department of Revenue. 

Enhanced state tax credits and incentives 

Some states have increased tax credits and incentives for electric vehicles, such as Colorado's recent EV tax credit increase to $5,000. When combined with the federal EV tax credit, Coloradans can save up to $12,500 on qualifying electric cars. 

However, some states, like Texas, have implemented EV taxes. Under a law recently signed by Gov. Greg Abbott, Texans who own or purchase electric vehicles will pay up to $400 to register their “clean vehicles” and $200 every time they renew their registrations. The measure is expected to bring in about $38 million in new revenue to the state.

Related: Colorado EV Tax Credit Rises to $5,000

Additionally, Earned income tax credits are increasing in Hawaii and Colorado. Similar to the federal earned income tax credit, earned income credits offered at the state level can be valuable for working families and older adults with lower incomes.