Utah Cuts Income Tax Rate and Expands Credits

On March 26, Governor Spencer Cox (R-UT) signed HB106 and SB71, bills that amend Utah’s individual income tax code. HB106 reduces the state’s flat income tax rate from 4.55% to 4.5% and expands the state’s nonrefundable Child Tax Credit (CTC) to children under the age of 6 (previously limited to kids 1-4).¹ SB71 expands the state’s Social Security credit (which offsets any tax liability from Social Security benefits) by increasing the income thresholds at which the credit begins to phase out by 20%. Each change applies for tax year 2025.

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

Key results for 2025:

• Reduces state revenues by $96 million
• Benefits 62% of Utah residents
• Has no effect on the Supplemental Poverty Measure
• Lowers the Gini index of inequality by 0.001%

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

The reduction in Utah’s income tax rate to 4.5% via HB106 will mark the 4th year in a row in which the flat tax has been cut. In 2021, the state’s income tax rate stood at 4.95% before dropping to 4.85% in 2022, 4.65% in 2023, and 4.55% in 2024.

In addition to the income tax cut, HB106 has modified the nonrefundable CTC by increasing the number of kids eligible for the credit. In 2025, households can now claim children who are either under the age of 1 or exactly 5 years old. Previously, only children between 1 and 4 qualified. The changes will result in all children below the age of 6 being eligible. The $1,000 credit will offset the tax liability of households with children in the new age range. However, since it is nonrefundable, households with a state tax liability below $1,000 will not receive the entire credit. The credit begins to phase out at 10% starting at $43,000 for single households and $54,000 for married couples.

The Social Security credit in Utah acts as a nonrefundable credit that offsets any tax liability that is derived from benefits stemming from Social Security. Households must have AGI below certain thresholds for their entire Social Security tax liability to be eliminated. Those above will see their credit phased out by 2.5%. SB71 modified the thresholds as follows: The threshold for single households increases from $45,000 to $54,000, while those who are married but file separately will see their threshold increase from $37,500 to $45,000. All other filing statuses’ Social Security threshold will increase from $75,000 to $90,000.

As there are several components to the tax package, different household compositions will see unique impacts to their net income. Most households will benefit solely from the reduction in the state's income tax rate. However, additional benefits apply to two groups: middle-income households with newborns and 5 year old children or families that receive Social Security benefits and have earnings above the old Social Security credit thresholds. For example, a single adult earning $50,000 will see a $25 reduction in their tax liability solely due to the income tax rate cut. However, a single parent with the same annual income and a child who is 5 years old would gain $325 as the nonrefundable Child Tax Credit would lower their tax liability by an additional $300. Figure 1 displays the change in net income for this household as earnings rise.

While this household now qualifies for the $1,000 CTC, they will not be eligible for the maximum amount at any income level. Since the household’s tax liability does not reach $1,000 until the CTC begins to phase out at $43,000, the maximum benefit that the household will receive from the CTC is $699.

For an elderly couple where one spouse earns $60,000 from their job and the other receives $30,000 from Social Security, their net income increases by $293. The reduction of the income tax rate would decrease their tax liability by $43, while increasing the Social Security credit’s phaseout threshold would allow the household to receive $250 more from the credit. Figure 2 shows the change in net income for this household as earnings rise.

Due to the increases in the thresholds, the household will see an increase in its Social Security credit allotment from $51,000 to $110,500 in earnings (excluding Social Security benefits). However, their Social Security credit drops between $19,000 and $50,500, due to their overall tax liability dropping, resulting in the non-refundable credit offsetting less income tax. The maximum increase in the credit that this household composition would gain is $362, if their earnings are between $64,500 and $95,500 (see Figure 3). Table 1 summarizes these households and their change in net income.

Table 1: Change in Net Income Based on Household Composition

Household Composition	Change in Net Income ($)
Single, No Children, $50,000	61
Single, One Child (5 year old), $50,000	277
Married, No Children, $60,000 (Additional $30,000 in Social Security Benefits)	1,177

For tax year 2025, Utah’s latest income tax changes will reduce state revenues by $95.5 million, according to PolicyEngine’s static modeling.

The tax changes will raise the net income of 62.3% of residents in Utah. The percentage of residents in each income decile who are net beneficiaries will vary. For example, 13% of residents in the lowest income decile will see their net income increase, while 89% in the highest decile will have a larger after-tax income.

Utah’s new tax package will provide an average benefit of $82 per household, ranging from $8 in the bottom income decile to $249 in the top decile (as defined by the nationwide income distribution).

We project the tax changes to have no effect on poverty or deep poverty while reducing the state’s Gini index of inequality by 0.001%.

Utah’s changes to its individual income tax will lower state revenues by $96 million in 2025. The provisions will provide an average benefit of $82 to households; those in higher-income deciles will benefit more than lower-income households in dollar terms. The bill will not affect the state’s Supplemental Poverty Measure, and it lower the Gini index of income inequality by 0.001%.

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.