With a veto-proof majority in the House and Senate, Idaho lawmakers have sent to the Governor HB 40 to continue the state's impressive income tax reduction efforts. Along with reducing the state's income tax rate from 5.695% to 5.3%, the bill includes a recommendation from one of our Sawtooth Leadership Academy Students to exempt military pensions from income tax liability.
Speaker Moyle tweeted today: "The Senate just passed our $253 million income tax reduction, and the biggest single tax cut in Idaho history is headed for the governor’s desk. Taxpayer money belongs in taxpayer pockets!"
The additional income tax relief provided by HB 40 will help continue to grow Idaho's economy and ensure that local businesses remain competitive with those across the region. Here are some of the current regional income tax rates Idaho is competing with:
Montana - 5.9% (Gov. Gianforte 2025 proposal would drop to 4.9%)
Idaho - 5.695% (HB 40 reduces to 5.3%)
Utah – 4.55%
Colorado – 4.25% (temporary – capped at 4.40%)
North Dakota – 2.5%
Nevada/South Dakota/Washington/Wyoming – No personal income tax (though Washington does have a standalone 7% capital gains income tax)
There have been some complaints that these income tax reductions only benefit the wealthy. A couple of things to keep in mind about this.
First, the tax code shouldn’t exist to redistribute income. Its focus should be on funding the core functions of government using the principles of transparency, simplicity, neutrality, and stability while causing the least amount of economic distortions possible.
Second, when talking about taxes based on a percentage of income, the relief will be proportional to the tax paid. There are many exemptions, deductions, and targeted credits specifically designed to help alleviate the tax burden for low-income individuals.
Finally, don’t overlook the impact of corporate income tax cuts on increased economic activity, including more business investment, increased employment and higher wages. Here is a good primer from the Tax Foundation on how corporate income tax cuts impact those important economic variables.
By further reducing the income tax burden and the economic drag these types of taxes create, lawmakers are putting families, businesses, and Idaho's economy in a strong position for the best overall tax climate for success.