Mississippi H.B. 1 Cuts Income Tax to 3.75% in 2027

On January 1, 2027, Mississippi's flat individual income tax rate falls from 4.0% to 3.75%. It is the first cut under House Bill 1, the "Build Up Mississippi Act," signed by Gov. Tate Reeves (R) on March 27, 2025. The law schedules the rate down to 3% by 2030, then hands full elimination to a revenue-growth trigger.

The Legislature has left the enrolled text unchanged through the 2026 regular session, which adjourned in April 2026. The Department of Revenue's 2026 legislation list shows no bill amending the rate schedule, the trigger, or the offsets.

The offsets are already in effect and continue to phase in. The grocery sales tax fell from 7% to 5% on July 1, 2025. The gasoline excise is rising 9 cents over three years: 21 cents since July 1, 2025, 24 cents since July 1, 2026, and 27 cents from July 1, 2027, after which it indexes to highway construction costs every other year beginning July 1, 2029, capped at 1 cent per adjustment. The National Taxpayers Union Foundation (NTUF) projects the fuel increase at $250 million to $300 million a year. What follows is a reading of the statute itself, the arithmetic of both interpretations, and what each does to a Mississippi incentive package.

What the Statute Says

The trigger sits in Section 2 of the enrolled bill. Section 2 of H.B. 1 (As Sent to Governor) provides, for calendar year 2031 and after, that "if the Working Cash-Stabilization Reserve Fund is fully funded as provided in Section 27-103-213" the tax shall be reduced "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." The operative tier reads, verbatim:

The next tiers follow the same pattern. An excess of at least 1% but under 1.15% of the one-point cost produces a 0.25-point cut. An excess of 1.15% or more produces the maximum 0.3-point cut. The statute defines the "cost of a one percent (1%) cut" as "the reduction in individual income tax collections that would result from a one percent (1%) reduction in the tax on all taxable income of individuals in excess of Ten Thousand Dollars ($10,000.00)." The Commissioner of Revenue must certify that figure each December 15. The Legislative Budget Office (LBO) provides the adjusted revenue figure each October 1, beginning October 1, 2029, for fiscal year 2029 collections.

The trigger has three structural features. First, the comparison pairs prior-year actual recurring revenue with following-year appropriations, so spending restraint matters as much as revenue growth. Second, the rainy-day-fund requirement is a separate condition that has to be met on its own. Third, nonrecurring revenue is stripped out. "Adjusted General Fund Revenue Collections" means "State General Fund revenue collections adjusted by removing any nonrecurring State General Fund revenue collections," so one-time federal money cannot fire the trigger.

The Senate Meant 85% and the Bill Says 0.85%

The Senate intended 85% of the cost of a one-point cut. As Mississippi Today reported on March 20, 2025, the Senate intended cuts only when the surplus reached 85% of the cost of a one-point cut, but the bill said 0.85%, and "similar typos were in other metrics of the trigger language." The House recognized the error and passed the Senate's text as-is. Lt. Gov. Delbert Hosemann said the following day that the Senate had sent S.B. 3095 back to the House with clarifications. Reeves, who signed H.B. 1 a week later, posted after the House vote that "I hear there are those who desire future tweaks to this law, and those can certainly be considered in future legislation." None has been.

Exhibit 1 applies both readings to a roughly $500 million cost of a one-point cut, NTUF's working estimate. The Institute on Taxation and Economic Policy (ITEP) puts the Senate's intended 85% threshold at roughly $515 million, which implies a one-point cost near $606 million. We use $500 million throughout.

Applying the test to FY2026 shows how far apart the readings are. The trigger does not begin measuring until fiscal year 2029. Testing FY2026 collections against FY2027 appropriations shows what each reading would do. The Legislative Budget Office's June 2026 revenue report, as reported by Magnolia Tribune on July 7, 2026, put FY2026 general fund collections at about $7.728 billion, $176.7 million above the revised estimate and 1.15% above FY2025. The Legislature's 2026 session budget summary put FY2027 general fund appropriations at $7.368 billion and projected the Working Cash-Stabilization Reserve Fund at $711.7 million, 99.65% of its $714.2 million cap. That is an excess of roughly $360 million, or about 72% of a one-point cost. As written, it exceeds the $5.75 million threshold for the maximum 0.3-point cut. As intended, it falls short of the $425 million floor and produces no cut. The LBO's projection leaves the reserve fund about $2.5 million under its cap, so the fully funded condition would also matter in a real test year.

Elimination Timeline Under Each Reading

The two readings put elimination in different decades. If the historical pattern holds and the statute stays as written, with max-tier 0.3-point cuts in roughly 6 of every 11 years, the rate leaves 3% in 2031 and reaches zero after ten triggered cuts, around 2048, and as early as 2040 if every year fires. As intended, at 2 trigger years per 11, ten cuts take roughly 55 years and elimination drifts to roughly 2086. NTUF's April 2025 reconstruction showed FY2026 firing under neither reading, with FY2025 collections of $7.596 billion falling $103 million short of projected FY2026 spending of $7.699 billion. Those inputs predate the closed FY2025 books, and the LBO report cited above implies FY2025 collections near $7.64 billion. A year with revenue below appropriations produces no cut under either reading.

Each rate cut reduces withholding on a given payroll. An employee with $60,000 of taxable income pays 4.0% on the amount over $10,000, or $2,000, in 2026. That falls to $1,875 in 2027 and $1,500 in 2030, then steps toward zero. A 500-employee facility at that average wage generates about $1.0 million of annual state withholding today, $750,000 by 2030, and zero at elimination, which is the base on which some Mississippi incentives are paid. Exhibit 2 shows the schedule year by year.

What This Means for Incentive Deals

Two of the five taxes MFLEX rebates can offset are shrinking. The Mississippi Flexible Tax Incentive (MFLEX), the state's discretionary rebate program, requires at least 10 new full-time jobs paying at least 75% of the state or county average wage, or $2.5 million of investment. It is a rebate usable against income, franchise, sales, use, and payroll withholding taxes, with no more than 20% of the total award applicable to withholding in a given year under the Mississippi Development Authority's program rules. Two of those five taxes are being phased down by statute. The franchise tax falls to $0.25 per $1,000 of capital in 2027 and is repealed effective January 1, 2028, and individual withholding shrinks with each rate cut. The corporate income tax, which the Department of Revenue's current instructions put at 4% on the second $5,000 of taxable income and 5% above $10,000, is not touched by H.B. 1, so corporate income and sales/use offsets carry the remaining value. A $10 million MFLEX award can apply up to $2 million per year against withholding, a base whose rate declines 25% by 2030 on the unconditional cuts alone.

A lower personal income tax comes with a higher fuel tax burden. A zero personal income tax is a recruiting asset for payroll-heavy operations, the same logic behind the Southeast's broader rate competition, including South Carolina's move to a two-bracket income tax. The cut is paired with a higher fuel tax on logistics-intensive operations, and a future Legislature would confront the trigger in a downturn.

We expect the Legislature to leave the decimal as enacted. The 2026 session adjourned after Mississippi Today put the typo on the front page, the House passed the Senate's text as written, and no bill amending the trigger appears on the Department of Revenue's 2026 legislation list. Under the as-written statute, we expect the rate to reach 3% by 2030, a first triggered cut in 2031 to 2033, and little value in withholding-based incentive capacity after 2035. Those timing estimates are our own judgment. A fix passed before the LBO's first report on October 1, 2029 would change the politics more than the arithmetic. Exhibit 3 lists each date.

What to Do Now

This matters to any company holding a Mississippi award with a withholding component, and to anyone pricing a new MFLEX package this year. The 3.75% rate takes effect January 1, 2027, and under the statute as written the first triggered cut below 3% can arrive as early as 2031. If you want a read on fit before January 1, 2027, reach out to our team.

References

1. Mississippi Legislature, H.B. 1 (2025 Regular Session), "Build Up Mississippi Act," enrolled text and history via LegiScan; enrolled text.
2. Office of Gov. Tate Reeves, "Gov. Reeves Signs Historic Legislation Eliminating Mississippi's Individual Income Tax," Mar. 27, 2025.
3. Mississippi Today, "OOPS! Senate sent House an income tax bill with typos. House ran with it. What's next?" Mar. 20, 2025; "The Typo Tax Swap Act of 2025 may be the most Mississippi thing ever," Mar. 22, 2025; "Gov. Reeves signs typo tax overhaul bill into law," Mar. 27, 2025.
4. National Taxpayers Union Foundation, Joe Bishop-Henchman, "Mississippi Moves to End Individual Income Tax," Apr. 8, 2025.
5. Thomson Reuters, "Mississippi Governor Signs Legislation Phasing Out Individual Income Tax."
6. Empower Mississippi, "Mississippi Legislature Passes Historic Legislation To Phase Out Mississippi's Income Tax."
7. Mississippi Development Authority, MFLEX Incentives; Mississippi Flexible Tax Incentive Program rules.
8. Mississippi Department of Revenue, Corporate Income and Franchise Tax; 2025 Corporate Income and Franchise Tax Instructions (Form 83-100); 2026 Legislation.
9. Mississippi Legislative Budget Office, Budget Summary, 2026 Legislative Session.
10. Magnolia Tribune, Frank Corder, "Mississippi brings in $176.7 million above revenue estimate for FY 2026," Jul. 7, 2026.
11. Mississippi Legislative Budget Office, FY 2026 Revenue Report, June 2026.
12. Mississippi Today, "What lived and died in the 2026 Mississippi legislative session," Apr. 5, 2026.
13. Tax Foundation, Mississippi Tax Rates & Rankings (2026).
14. ITEP, "A Windfall for the Wealthy: A Distributional Analysis of Mississippi HB 1," Apr. 8, 2025.
15. WLBT, "Governor posted to sign tax reform legislation, despite confusion," Mar. 22, 2025.

© Copyright 2026 TC Policy Group, LLC (d/b/a Crawford Partners). The views expressed herein are those of the author(s) and not necessarily the views of Crawford Partners, its management, its subsidiaries, its affiliates, or its other professionals. Crawford Partners is not a law firm and cannot provide legal advice.