The 2040 Deadline: 7 Shocking Facts About Mississippi's Plan To Eliminate Income Tax

The simple answer is no, Mississippi has not eliminated its income tax—yet. As of today, December 16, 2025, the Magnolia State is in the middle of a historic, multi-phase plan to completely phase out its individual income tax, a process that is expected to culminate by the year 2040. This bold fiscal maneuver, championed by Governor Tate Reeves and the state legislature, involves a series of dramatic rate cuts and legislative acts that are reshaping Mississippi’s economic landscape, making it one of the most aggressive tax reform efforts in the nation.

This deep dive will cut through the political rhetoric and provide the latest, most current details on the state's tax reform timeline, the specific legislation driving the change, the current tax rates for 2025, and the controversial economic impact of moving toward a zero-income tax future. Understanding the nuances of the "Build-Up Mississippi Act" and its predecessors is crucial for residents, businesses, and taxpayers across the country watching this monumental shift.

The Legislative Blueprint: From Flat Tax to Zero Tax

Mississippi’s journey to becoming a potential income tax-free state is not a single-step event but a two-part legislative masterplan. This phased approach began with initial cuts and was dramatically accelerated by a subsequent, landmark bill designed to provide long-term tax relief and boost economic competitiveness with neighboring states like Tennessee and Florida, which have no state income tax.

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Phase 1: The Mississippi Tax Freedom Act of 2022 (HB 531)

The initial groundwork for tax reduction was laid with the passage of the Mississippi Tax Freedom Act of 2022, or House Bill 531.

• Elimination of Lower Brackets: This act immediately eliminated the lowest state income tax brackets, including the 4% rate, starting in the 2024 tax year.
• The Flat Tax Transition: It established a flat tax structure, meaning all taxable income over a certain threshold would be subject to a single rate.
• Rate Reduction Schedule: The law set a schedule for rate decreases on taxable income exceeding $10,000:
  • Tax Year 2024: Rate reduced to 4.7%.
  • Tax Year 2025: Rate further reduced to 4.4%.
  • Tax Year 2026: Rate set to drop to 4.0%.

Phase 2: House Bill 1 (HB 1) - The Build-Up Mississippi Act

The true acceleration toward total elimination came with the passage of House Bill 1, also known as the Build-Up Mississippi Act, signed into law by Governor Tate Reeves.

• The 3% Target: HB 1 mandates a further reduction of the income tax rate to 3% by the year 2030.
• Annual Decreases (2027-2030): The rate will be cut by 0.25 percentage points annually starting in 2027 until it reaches the 3% mark.
• The Zero-Tax Mandate: Most significantly, the legislation includes provisions for continuous, future annual decreases after 2030 until the rate ultimately falls to 0%, completely eliminating the state's individual income tax.
• The 2040 Goal: While the exact year is conditional on state revenue, projections indicate the individual income tax could be entirely phased out by 2040.

This aggressive legislative strategy demonstrates a clear commitment from state leaders to join the ranks of the nine existing states—including Texas, Nevada, and Wyoming—that do not levy a state income tax on individuals. The Mississippi Department of Revenue is responsible for implementing these complex, multi-year changes.

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The Controversial Trade-Off: Who Pays for the Tax Cut?

Eliminating a tax that generates nearly $2 billion in annual state revenue is a monumental task, and it necessitates a controversial rebalancing of the state's financial structure. Critics of the plan argue that the burden of replacing the income tax revenue will fall disproportionately on lower- and middle-income families, while proponents tout the economic growth potential.

The Revenue Replacement Strategy

To offset the massive revenue shortfall from the income tax elimination, the state has implemented a series of tax adjustments:

1. Increased Sales Tax and Consumption Taxes: The most significant proposed adjustment involved potential increases to the state sales tax, which is a common mechanism in tax-free states. While the final enacted bill may have varied from initial proposals, the general strategy involves shifting the tax burden from income (which is progressive) to consumption (which is often regressive).

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2. Grocery Tax Reduction: Some legislative proposals included a reduction in the state's grocery tax to soften the impact of higher sales taxes on essential goods. This measure is intended to provide relief for working-class families and address concerns about the regressive nature of a consumption-based tax system.

3. Increased Gas Tax: Another element of the revenue replacement strategy involves raising the state gas tax. This is a user-fee mechanism designed to fund infrastructure projects and is generally viewed as a less politically contentious way to generate predictable revenue streams.

Economic Impact and Topical Authority: A Windfall or a Warning?

The debate over Mississippi's tax reform is a microcosm of a national discussion on fiscal policy. Advocates, including Governor Reeves, argue that eliminating the income tax will make Mississippi more competitive, attracting businesses, entrepreneurs, and high-earning individuals, thereby stimulating job growth and increasing the overall tax base (the "supply-side" or "dynamic scoring" argument). The National Federation of Independent Business (NFIB) is a strong supporter, viewing the cuts as a boon for small business owners.

However, a distributional analysis of earlier versions of the tax plan suggested that the majority of the benefits would flow to the wealthiest residents, leading to the plan being labeled a "windfall for the wealthy" by organizations like the Institute on Taxation and Economic Policy (ITEP).

Furthermore, the long-term fiscal stability of the state is a major concern. Critics worry that a substantial revenue shortfall could lead to cuts in essential public services, such as education, healthcare, and infrastructure, potentially undermining the state's ability to "Build-Up Mississippi" as the bill's name suggests. Entities like the Mississippi Economic Council (MEC) continue to monitor the long-term impact on the state's budget and economic health.

The Current Reality and Future Projections for Taxpayers

For taxpayers, the most important takeaway is that while the income tax is not gone, it is significantly lower than it was a few years ago. The current rate is a flat 4.4% on taxable income over $10,000 for the 2025 tax year, with a clear path to 4.0% in 2026.

Mississippi is now firmly on track to become the tenth state in the U.S. without an individual income tax, cementing its position in the national conversation about tax-free states. The ultimate success of the Build-Up Mississippi Act will be measured not just by the final tax rate of 0%, but by the state's ability to maintain a strong budget and fund public services without relying on income tax revenue over the next two decades.

The phased elimination ensures that the state has time to adjust its budget and revenue streams, but the commitment to a zero-income tax future is now a legislative reality. The next key milestones will be the 4.0% rate in 2026 and the 3% target in 2030, followed by the final, incremental cuts that will define Mississippi’s economic future.