2026 State Tax Changes Summary
Last Updated: January 2026
This page summarizes the significant state income tax changes that took effect for tax year 2026. Review these updates to ensure your ProPay withholding settings are current.
Major Structural Changes
Ohio: New Flat Tax System
Ohio replaced its progressive income tax system with a flat tax of 2.75% on income over $26,050. This is a significant simplification from the previous multi-bracket system.
- Effective: January 1, 2026
- Rate: 2.75% flat rate
- Exemption: First $26,050 is tax-free
- ProPay Impact: Update Ohio tax tables to reflect the new flat rate structure
Oklahoma: Simplified Brackets
Oklahoma reduced its tax brackets from 6 to 3 and lowered the top rate.
- Previous: 6 brackets, top rate 4.75%
- 2026: 3 brackets, top rate 4.5%
- ProPay Impact: Update Oklahoma withholding tables
New Hampshire: Now Fully Tax-Free
New Hampshire's Interest and Dividends Tax was fully repealed effective January 1, 2025. For 2026, New Hampshire joins the list of states with no income tax on wages or investment income.
- Status: No state income tax
- ProPay Impact: No state withholding required for New Hampshire employees
Maryland: New Top Brackets
Maryland added two new top brackets for high-income earners:
- 6.25% on income over $250,000 (single) / $300,000 (married)
- 6.50% on income over $500,000 (single) / $600,000 (married)
2026 Rate Reductions
The following states reduced their income tax rates for 2026:
| State | 2025 Rate | 2026 Rate | Change | Notes |
|---|---|---|---|---|
| Indiana | 3.00% | 2.95% | -0.05% | Flat tax |
| Kentucky | 4.0% | 3.5% | -0.5% | Flat tax |
| Mississippi | 4.4% | 4.0% | -0.4% | On income over $10,000 |
| Montana | 5.9% | 5.65% | -0.25% | Top bracket rate |
| Nebraska | 5.01% | 4.55% | -0.46% | Top bracket rate |
| North Carolina | 4.25% | 3.99% | -0.26% | Flat tax (withhold at 4.09%) |
| Oklahoma | 4.75% | 4.5% | -0.25% | Top bracket rate |
| Utah | 4.55% | 4.5% | -0.05% | Flat tax |
States to Watch in 2027
Several states have enacted legislation for future rate reductions:
- Colorado: May reduce from 4.40% to 4.25% if revenue triggers are met
- Georgia: Scheduled to decrease toward 4.99% over coming years
- Iowa: Continuing phased reductions toward 3.5%
- Nebraska: Additional reductions planned through 2027
ProPay Update Checklist
To ensure accurate withholding for 2026:
- Update state tax tables for all affected states listed above
- Verify Ohio employees are set up with the new flat tax rate
- Review Oklahoma employees for the simplified bracket structure
- Confirm New Hampshire employees have no state withholding
- Check Maryland high earners for the new top brackets
Related Topics
- State Income Tax Withholding Guide Overview
- Flat Tax States
- Progressive Tax States
- No Income Tax States