Mississippi Passes Major Tax Legislation, Begins Income Tax Phase-Out

On March 27, 2025, Mississippi Governor, Tate Reeves, signed new legislation that will phase out the state’s individual income tax over time. The bill also includes changes to the state’s grocery and gasoline taxes, marking a broader update to Mississippi’s overall tax structure.

Scheduled Income Tax Reductions Through 2030

A significant provision of the legislation is the scheduled reduction of the state’s individual income tax over the next five years. For the 2025 tax year, Mississippi’s income tax is at 4.4% on taxable income exceeding $10,000. In 2026, that drops to a flat 4%.

From there, the rate is set to decline incrementally by 0.25 percentage points a year:

• 2027: 3.75%

• 2028: 3.5%

• 2029: 3.25%

• 2030: 3.0%

By 2030, all Mississippi taxpayers will be subject to a flat 3% income tax rate on taxable income in excess of $10,000.

Income Tax Phase-Out Beyond 2030

Beginning in 2031, any additional reductions to the individual income tax rate will depend on the state’s revenue growth and spending restraint. The annual performance in these factors will determine what the yearly incremental decrease will be. Under the most optimistic projections, the income tax will be fully eliminated by 2040.

Grocery and Gasoline Tax Adjustments

The legislation also includes adjustments to other areas of the state’s tax code. Starting July 1, 2025, the sales tax on food and groceries will be reduced from 7% to 5%.

On the other hand, the state’s gasoline tax will increase over time. The current gas tax of 18 cents per gallon will rise to 21 cents on July 1, 2025, then to 24 cents on July 1, 2026, and finally to 27 cents per gallon on July 1, 2027.  

Despite the increase in gas taxes, the overall impact of this legislative package is expected to result in a net tax reduction for the vast majority of Mississippi taxpayers.

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