5 States Lowering Taxes in 2021

heap of american money cash and vintage light box
Photo by Karolina Grabowska on Pexels.com

To modify an old journalism adage, “When a state raises taxes, that’s expected. But when a state lowers taxes, that’s news!” And, believe it or not, there are some states doing just that in 2021.

Yes, across the United States taxes are still going up in lots of places. According to the Tax Foundation, 26 states and the District of Columbia are making substantial changes to their tax codes. Estate tax rules are changing in Connecticut and Vermont. Colorado, Georgia, and Oregon will charge more taxes on cigarettes and vaping. And Arizona and New Mexico are adding new higher tax brackets.

But who are these renegade states who have the audacity to give more of the people’s money to the people? There are five.


Tennessee has had no state income tax for decades. But, since 1929, it’s had the Hall Tax, a tax imposed on interest from bonds and notes and dividends on stock. The legislature voted to phase out the 6% Hall Tax beginning in 2016 and as of January 1, 2021, it’s gone truly making Tennessee an income tax-free state. The other states in that category are Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming.


Individuals with pass-through business income in Iowa will get a higher percentage benefit this year. For the past two years, qualifying taxpayers were allowed a state deduction equal to 25 percent of the federal deduction. This year the state allowable deduction goes up to 50 percent. It is supposed to move up to 75 percent in 2022.


The top marginal tax rate drops in Arkansas from 6.6% to 5.9%. That affects residents earning more than $79,300. Additionally, the number of income tax brackets goes down from four to three.


Retired residents in Connecticut will get to keep more of their money. The state is phasing in a larger exemption for pension and annuity income. The exemption goes up to 42 percent in 2021 from the 28 percent exemption last year.


Massachusetts citizens and charitable organizations both benefit from the new charitable contribution deduction. Interestingly enough, the deduction is available whether a taxpayer itemizes deductions or claims the standard deduction.

Internal Revenue Service

And while we’re at it, let’s give a kudos to the IRS, which is extending a couple of charitable donation provisions for another year.

In 2020, as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, taxpayers who used the standard deduction were allowed to deduct up to $300 for monetary donations to qualified nonprofits. Married couples filing jointly can take a $600 deduction. That carries over into 2021.

Second, the CARES Act removed the cap on how much can be given to qualified charitable organizations by taxpayers who itemize their deductions. Through 2019 there was a cap of 60% of adjusted gross income that you could give and take off your taxes. But the removal of the cap has been extended into 2021.

As nice as the IRS is in extending these two provisions, they won’t take your word about how much you give to charity. For any donation of $250 or more that you’re going to deduct, the IRS requires a record to prove that you did what you said you did.

Previous articleShould You Refinance Your Mortgage Before Retirement?
Next articleCutting Healthcare Costs in Retirement