Idaho’s New Individual Income Tax Changes

The lower top marginal rate and larger grocery tax credit will cost the state $225 million in 2025.

On March 6th, Governor Brad Little (ID-R) signed House Bill 40, lowering the state's top marginal income tax rate from 5.695% to 5.3%.¹ A week later, he signed House Bill 231, which raised the state’s grocery tax credit from $120 (or $140 for filers aged 65 or older) to $155.²

We at PolicyEngine have updated our model to reflect these changes and analyzed their effects on the state of Idaho and its residents.

Key results for 2025:

• Reduces state revenues by $225 million
• Benefits 87% of Idaho residents
• Has no effect on the Supplemental Poverty Measure
• Increase the Gini index of inequality by 0.01%

Use PolicyEngine to view the full results or calculate the effect on your household.

Idaho has undergone several tax reforms in recent years. However, in 2024, Idaho has two tax brackets: one at 0% and another at 5.695%. For single filers, the 5.695% rate does not apply until their taxable income exceeds $4,673. House Bill 40 reduces the 5.695% rate to 5.3%.

In 2025, using inflation projections from the Congressional Budget Office, this new rate would apply when a single filer’s taxable income reaches $4,777. Table 1 shows when the new marginal tax rate would apply based on filing status.

Table 1: Taxable Income Where Idaho’s Top Marginal Tax Rate Applies Based on Filing Status in 2025

The grocery tax credit provides a fully refundable credit to households based on the number of family members. The grocery tax credit is not subject to any income limits or phase-outs, meaning any household in Idaho can claim the credit.

The only exception is if a household receives benefits for the Supplemental Nutrition Assistance Program (SNAP) throughout the year, they do not qualify for the credit. In 2024, the credit’s value was $120 per member, with an additional $20 benefit for claimants 65 or over. House Bill 231 raises the credit value to $155 while eliminating the $20 supplement for elderly household members.

The two examined income tax changes have different effects on households based on their composition and earnings. Here, we consider some examples, as displayed in Table 2.

A childless adult with no earnings will be unaffected by either tax provision. Since single filers in Idaho can take a standard deduction of $14,600 and the top marginal tax rate does not go into effect until they have $4,673 of taxable income, a childless adult must earn $19,273 before their net income would be affected by the rate change. Additionally, since a childless adult with no earnings, but who meets SNAP’s work requirements (ex., is participating in a work program at least 80 hours per month), is eligible for SNAP benefits, the increase in grocery tax credit does not change their net income either. They would have to earn over $20,000 to no longer qualify for SNAP and therefore be eligible for the grocery tax credit.

A single parent with two kids earning $50,000 annually will gain $176. As their income excludes them from SNAP benefits, the household qualifies for the grocery tax credit, which increases by $35 per household member for a total of $105. Since the household's taxable income is subject to the reduced top marginal tax rate, their tax liability is reduced by $71.

Finally, an elderly couple with no children and $200,000 of annual earnings will see their net income increase by $214. Since each spouse was scheduled to receive $140 in grocery credits ($120 plus the $20 aged amount) and will now receive $155 each, their total allotment increases by $30. Additionally, the top marginal rate cut lowers their state income tax liability by $184.

Table 2: Change in Net Income Based on Household Composition in 2025

The figure below displays how a single parent of two’s net income changes as household earnings vary for tax year 2025.

Figure 1: Change in Net Income for a Single Parent of Two Children in 2025

Using PolicyEngine static modeling, lowering Idaho’s top marginal tax rate will reduce state revenues by $170.4 million for tax year 2025. Raising the value of the Idaho grocery tax credit will cost $54.5 million. With both policies, the combined state budgetary impact is $224.9 million.

87% of residents in Idaho will see an increase in their net income. The range of residents being net beneficiaries varies based on their income decile. 46% of residents in the lowest income decile will see their net income increase, while 100% in the highest two deciles will see a gain.

Figure 2: Winners of Idaho’s Income Tax Changes by Decile

The tax package will provide an average benefit of $292 per household, ranging from $25 in the bottom income decile to $1,193 in the top decile (as defined by the nationwide income distribution).

Figure 3: Average Benefit of Idaho’s Income Tax Changes by Decile

The tax changes are projected to have no effect on poverty or deep poverty while increasing the state’s Gini index of inequality by 0.01%.

The analyzed individual income tax changes from Idaho’s 2025 legislative session will lower state revenues by $224.9 million in 2025, or $292 per household. Households in higher income deciles will benefit more than those in lower income deciles on an absolute and relative basis. The bill will not affect the state’s supplemental poverty measure and increase the Gini index of income inequality by 0.01%.

As policymakers evaluate reforms such as these, analytical tools like PolicyEngine offer critical insights into the impacts on diverse household compositions and the broader economy.

We invite you to explore our additional analyses and use PolicyEngine to calculate your own tax benefits or design custom policy reforms.

david trimmer
Policy Research Fellow at PolicyEngine

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