Mississippi Governor Signs Legislation Phasing Out Individual Income Tax

By Ashleigh M. Paige, Esq., Checkpoint

On March 27, 2025, Mississippi Governor Tate Reeves signed the Build-Up Mississippi Act, legislation that phases out the individual income tax in Mississippi. The bill cuts the individual income tax rate to 3% by 2030, with future annual decreases until the rate falls to 0% and the tax is eliminated. The bill also decreases the sales tax on groceries from 7% to 5%, effective July 1, 2025. Gasoline taxes are increased through tax year 2027. (L. 2025, H1, effective 07/01/2025 and as stated; Gov. Reeves Signs Historic Legislation Eliminating Mississippi’s Individual Income Tax, 03/27/2025.)

Reduction of individual income tax through calendar year 2030.

Effective July 1, 2025 and applicable beginning January 1, 2027, the individual income tax is phased out. For calendar year 2027 and all years thereafter, the tax imposed on all taxable income of individuals in excess of $10,000 will be at the following rates:

Calendar year 2027: For calendar year 2027, taxable income in excess of $10,000 will be taxed at the rate of 3.75%.

Calendar year 2028: For calendar year 2028, taxable income in excess of $10,000 will be taxed at the rate of 3.5%.

Calendar year 2029: For calendar year 2029, taxable income in excess of $10,000 will be taxed at the rate of 3.25%.

Calendar year 2030: For calendar year 2030 and all years thereafter, taxable income in excess of $10,000 will be taxed at the rate of 3%.

Prior to calendar year 2027, taxable income in excess of $10,000 is taxed at the rate of 4%.

Reduction of individual income tax for calendar year 2031 and thereafter.  

For calendar year 2031 and any calendar year thereafter, if the Working Cash-Stabilization Reserve Fund is fully funded as provided in Miss. Code Ann. § 27-103-213, the income tax imposed under Miss. Code Ann. § 27-7-5(b)(ii) on all taxable income in excess of $10,000 will be reduced by a percentage, depending on the percentage by which the Adjusted General Fund Revenue Collections for a fiscal year (beginning with fiscal year 2029) exceed the appropriations for the following fiscal year (beginning with fiscal year 2030):

• if the excess is at least 0.85%, but less than 1%, of the cost of a 1% cut, the tax will be reduced by 0.2%;
• if the excess is at least 1%, but less than 1.15%, of the cost of a 1% cut, the tax will be reduced by 0.25%; and
• if the excess is at least 1.15% of the cost of a 1% cut, the tax will be reduced by 0.3%.

The tax reduction will be effective for the calendar year beginning after the close of the fiscal year pertaining to the appropriations figure used in the calculation. When the application of the tax reduction provided for results in a tax of 0% on all taxable income of individuals in excess of $10,000, the tax will be eliminated.

Food sales tax reduction.

Effective July 1, 2025, retail sales of food or drink for human consumption not purchased with food stamps issued by the United States Department of Agriculture or other federal agency, but which would be exempt under Miss. Code Ann. § 27-67-111(o) if the food items were purchased with food stamps, will be taxed at the rate of 5%. Prior to July 1, 2025, these items are taxed at the rate of 7%.

Increase in gasoline taxes.

Effective July 1, 2025, the current 18¢ per gallon rate will continue through June 30, 2025. The rate will increase to 21¢ per gallon from July 1, 2025 through June 30, 2026, to 24¢ per gallon from July 1, 2026 through June 30, 2027, and 27¢ per gallon from July 1, 2027 until the date specified in Miss. Code Ann. § 69-39-35, on all gasoline and blend stock stored, sold, distributed, manufactured, refined, distilled, blended or compounded in Mississippi or received in the state for sale, use on the highways, storage, distribution, or for any purpose. After that, the rate is 14.4¢ per gallon.

Beginning July 1, 2029, and on July 1 of every other year thereafter, the excise tax rate will be adjusted by the percentage change in the yearly average of the National Highway Construction Cost Index (NHCCI) issued by the U.S. Federal Highway Administration (FHWA) for the most recent twelve-month published period ending December 31, compared to the base year average, which is the average for the twelve-month period ending December 31, 2025, and rounded to the nearest whole cent. The maximum amount of increase in the excise tax rate must not exceed 1¢ per net gallon of gasoline or special fuel and will take effect every other year. The Department of Revenue will notify each terminal supplier, position holder, licensed distributors distributor, and importer of the tax rate adjustment applicable on or before March 1.

Increase in special fuels taxes.

Effective July 1, 2025, the current 18¢ per gallon rate will be through June 30, 2025. The rate will increase to 21¢ per gallon from July 1, 2025 through June 30, 2026; to 24¢ per gallon from July 1, 2026 through June 30, 2027; and 27¢ per gallon from July 1, 2027 until the date specified in Miss. Code Ann. § 69-39-35. After that, the rate is 14.75¢ per gallon.

Beginning July 1, 2029, and on July 1 of every other year thereafter, the excise tax rate will be adjusted by the percentage change in the yearly average of the National Highway Construction Cost Index (NHCCI) issued by the U.S. Federal Highway Administration (FHWA) for the most recent twelve-month published period ending December 31, compared to the base year average, which is the average for the twelve-month period ending December 31, 2025, and rounded to the nearest whole cent. The maximum amount of increase in the excise tax rate must not exceed 1¢ per net gallon of gasoline or special fuel and will take effect every other year. The Department of Revenue will notify each terminal supplier, position holder, licensed distributors distributor, and importer of the tax rate adjustment applicable on or before March 1.