Several U.S. states are lowering individual income tax rates in 2024, meaning more financial relief for American taxpayers in those states.
Those states include Arkansas, Connecticut, Georgia, Indiana, Iowa, Kentucky, Mississippi, Missouri, Montana, Nebraska, New Hampshire (interest and dividends income only), North Carolina, Ohio, and South Carolina, the foundation said.
Connecticut reduced rates for certain tax brackets but did not reduce the top marginal rate.
Two U.S. states, Ohio and Montana, are consolidating some tax brackets, and one state, Georgia, is moving to a flat tax, the foundation noted.
Meanwhile, taxpayers in Michigan will face a higher individual income tax in 2024 (4.25%) than they saw in 2023 (4.05%), according to the Tax Foundation.
"The past several years have seen a wave of significant tax reforms, including rate reductions and tax cuts, as states emerged from the pandemic with revenue surpluses and stared down inflation," the foundation said.
Lowering tax rates can help attract more people and businesses to a state, making it more competitive. Some, including the progressive think tank Center on Budget and Policy Priorities, argue that recent tax-cutting sprees seen over the past few years can weaken state revenues by large amounts over time – limiting a state’s ability to maintain support for schools and other public services or make new investments.
New IRS brackets take effect, meaning paycheck could be bigger
Higher federal income tax brackets and standard deductions also took effect at the beginning of January, potentially giving Americans a chance to increase their take-home pay this year and shield more of their income from the IRS.
The IRS announced higher limits for the federal income tax bracket and standard deductions in November. The increase is intended to avoid a phenomenon known as "bracket creep," which happens when taxpayers are pushed into higher-income brackets even though their purchasing power is essentially unchanged due to steeper prices for most goods.
The IRS makes such adjustments annually, but in times of high inflation, the increases are more significant and impactful for taxpayers. This year, the tax brackets are shifting higher by about 5.4%.
The higher thresholds where tax rates take effect could mean savings for millions of Americans across all income brackets.
The inflation-adjusted elements will apply to the 2024 tax year, meaning returns filed in 2025.
When will the IRS start accepting tax returns in 2024?
Meanwhile, the tax season officially begins on Jan. 29, marking the first day that the IRS will begin accepting and processing 2023 tax returns. The agency said it expects more than 128.7 million individual tax returns to be filed by the April 15 deadline.
This year, the IRS is also redesigning and simplifying the long and often complicated notices it sends to taxpayers.
Each year, the tax-collecting agency sends about 170 million notices to individual taxpayers regarding credits, deductions and taxes owed. But the notices have been previously "criticized as too long, filled with complex legal jargon and difficult to understand," Treasury Secretary Janet Yellen said during a call with reporters.
"Redesigned notices will be shorter, clearer and easier to understand," Yellen said. "Taxpayers will see the difference when they open the mail and when they log into their online accounts."
This story was reported from Cincinnati. FOX Business contributed.