Mississippi will gradually eliminate its income tax while reducing the grocery tax and raising the gas tax under a bill Gov. Tate Reeves signed into law on Thursday.
In addition to cutting grocery and income taxes, House Bill 1 will also prevent liabilities from growing in the Public Employees’ Retirement System by reducing benefits for future employees.
During the signing ceremony, Reeves reflected on the decade of work it took for the Mississippi Legislature to eliminate the income tax—work that started when he was the lieutenant governor and president of the Senate in 2015.
“This is more than a policy victory. This is a transformation, and it’s a transformation that I have believed in, fought for and worked toward for many years,” he began. “From my days as lieutenant governor to my first campaign for this office and every legislative session since, I have made this my mission because I believe in a simple idea: that government should take less so that you can keep more, that our people should be rewarded for hard work, not punished. And that Mississippi has the potential to be a magnet for opportunity, for investment, for talent and for families looking to build a better life.”
Under House Bill 1, income tax rates for Mississippians who make more than $10,000 will fall from 4.4% in 2025 to 4% in 2026; the rate would drop to 3.75% in 2027 and by an additional 0.25% each year until the tax rate equals 3% in 2030.
Mississippi Sen. Josh Harkins, R-Flowood, said reducing the income tax from 4% to 3% would result in a $407-million revenue loss for the State.
Starting in 2031 under the plan, if the State’s surplus in revenue from the previous was greater than 85% of $407 million, the State will further reduce the income tax by 0.20%. If the surplus is 100% of $407 million, the State will reduce the income tax by 0.25% after 2031. The State will reduce the income tax by 0.30% if the surplus is over 115% of $407 million after 2031. The cycle could continue annually based on economic growth until the income tax is eventually eliminated, Harkins explained.
Mathematical errors in the Mississippi Legislature’s tax-reform plan could mean that Mississippi abolishes the income tax much sooner than intended without first meeting significant economic growth targets.
House and Senate leaders say another bill, Senate Bill 3095, could serve as a vehicle for any changes the Legislature needs to make to fix the tax-reform plan, House Bill 1.
“Some of y’all have focused on the typo in the bill, and I (will) use the Biblical analogy: Let he who has not had a typo cast the first stone,” Lt. Gov. Delbert Hosemann said during a signing ceremony on the Governor’s Mansion lawn on Thursday.
The grocery sales tax will decrease from 7% to 5% starting July 1, 2025, under the legislation. The bill will raise the gas tax from the current 18 cents per gallon to 21 cents per gallon starting July 1, 2025.
The gas tax will increase by three cents per gallon until reaching 27 cents per gallon on July 1, 2027. Under the plan, Mississippi will adjust its gas tax every other year to reflect the percentage change in the yearly average of the U.S. Federal Highway Administration’s National Highway Construction Cost Index starting on July 1, 2029. The tax increase would not be above one cent per gallon of gas every other year.
The plan will create a fifth tier in the Public Employees’ Retirement System for state employees hired on or after March 1, 2026, while terminating the Supplemental Legislative Retirement Plan for state lawmakers and Senate presidents elected after March 1, 2026. Terminating the SLRP for certain employees would mean current legislators and Senate President Lt. Gov. Delbert Hosemann would still receive “supplemental benefits” along with regular PERS benefits.
“In discussions often about our state’s competitiveness, we often compare Mississippi to other states, especially our southern sister states. Instead of engaging in that competition, we now aspire to set ourselves apart from that and actually be the benchmark for others. We are doing that today with an almost $1.9-billion net tax cut to the people of Mississippi, demonstrating that Mississippi is not just in the race—we’re leading it,” Mississippi House Speaker Jason White, R-West, said during a signing ceremony on the Governor’s Mansion lawn on Thursday.