Mississippi and Kentucky Move to Eliminate Personal Income Taxes: What It Means for Businesses and Residents

Two Southern states—Mississippi and Kentucky—are now leading the charge to eliminate personal income taxes, marking the first such movement since Alaska repealed its income tax in 1980. With long-term strategies underway, both states aim to reduce their income tax burdens incrementally, positioning themselves as more competitive environments for businesses and individuals alike.

For small business owners, entrepreneurs, and remote workers in these states, understanding the evolving tax landscape is critical for effective planning and long-term financial strategy.

Mississippi’s Plan: Phase-Out by 2040

Mississippi has implemented a staged approach to reducing its personal income tax:

• The current rate stands at 4%, already reduced from earlier years.

• Lawmakers plan to cut the rate to 3% by 2030.

• Further reductions are tied to state revenue benchmarks, with the goal of eliminating the tax entirely by 2040.

  
  

Supporters argue that tax reform will attract new residents, encourage small business growth, and stimulate economic development across rural and urban areas.

Kentucky’s Strategy: Performance-Based Tax Reductions

Kentucky is taking a slightly different approach. The state passed legislation in 2022 setting economic performance triggers to phase out the income tax. Key features include:

• Gradual rate cuts approved annually by lawmakers

• A scheduled drop to 3.5% by 2026

• Further cuts conditional on meeting revenue growth and budget surplus criteria

This approach gives lawmakers more flexibility and accountability while still working toward income tax elimination.

Why It Matters for Small Businesses and Entrepreneurs

For individuals and business owners in Mississippi and Kentucky, these income tax phase-outs could result in:

1. Lower Operating Costs and Take-Home Pay

Business owners structured as sole proprietors or pass-through entities could retain more profit after tax, potentially increasing reinvestment or personal income.

2. Business Relocation Incentives

Lower-tax states continue to appeal to entrepreneurs, especially those with remote teams or location-independent operations. These reforms make Mississippi and Kentucky more attractive to startups and solo professionals.

3. Long-Term Tax Planning Needs

With phased changes extending over decades, tax planning will require annual reviews to ensure business and personal strategies align with evolving laws.

Challenges to Consider

While the plans are popular among tax reform advocates, some concerns remain:

• Potential cuts to state services, including education and infrastructure

• Revenue volatility in the event of economic downturns

• Increased reliance on sales and consumption taxes, which can disproportionately affect lower-income households

How Bizora Can Help

At Bizora, we help small businesses and self-employed professionals navigate state-specific tax changes with confidence. Whether you’re:

• Considering relocating your business

• Reassessing your entity structure

• Planning for future state tax liabilities

—we provide clear, actionable guidance grounded in official regulations and long-term strategy.

Stay Informed and Ahead of State Tax Reform

Mississippi and Kentucky are setting a precedent that other states may soon follow. If you live or operate a business in one of these states, proactive tax planning will be essential in the years ahead.

Visit bizora.ai to explore compliance tools, personalized tax support, and updates on state-level tax law changes.