Mississippi’s House Bill 1 (HB1), recently signed into law, introduces sweeping tax reforms, adjustments to fuel and grocery taxes, and significant changes to the state’s public employee retirement system (PERS).
These measures aim to reshape the state’s financial landscape, affecting both individuals and businesses across Mississippi in the coming years.
One of the most notable aspects of HB1 is the phased reduction of income tax rates for earnings exceeding $10,000. Currently set at 4%, the rate will gradually decrease to 3.75% in 2027, 3.5% in 2028, 3.25% in 2029, and 3% in 2030 and beyond. Additionally, further reductions could be implemented starting in 2031 if Mississippi’s Working Cash-Stabilization Reserve Fund is fully funded and state revenues exceed certain thresholds.
To offset the income tax cuts, the law increases excise taxes on fuel while reducing sales tax on groceries. The state’s grocery tax will be reduced to 5% starting July 1, 2025, offering some relief to consumers. Gasoline and special fuel taxes will incrementally rise from 21¢ per gallon in 2025 to 27¢ per gallon by 2027, with provisions for further adjustments based on transportation funding requirements.
HB1 also introduces major changes to Mississippi’s PERS for those joining after March 1, 2026. Key provisions include a new hybrid retirement plan combining a defined benefit (pension) and defined contribution (401a) component, a requirement for new employees to contribute 9% of their salary, with 5% directed to their defined contribution plan.
The retirement age for new employees is set at 62 years with at least eight years of service or at any age after 35 years of service. The elimination of automatic cost-of-living adjustments (COLA) for retirees in the new tier, though the Legislature may authorize additional benefits periodically.
HB1 revises how tax revenues are distributed, including sales tax revenue from food and fuel taxes. Municipalities will also be allowed to use certain state-collected use tax revenues for infrastructure improvements and building rehabilitation.
For taxpayers, the law brings long-term income tax relief, though the immediate effects may be offset by higher fuel taxes. Grocery tax reductions will provide modest relief for consumers, particularly lower-income households. Public employees planning for retirement will need to navigate the new hybrid system, which alters pension benefits and cost-of-living adjustments.
While HB1 represents a significant shift in Mississippi’s tax and fiscal policies, its full impact will unfold over the next decade as these changes take effect.
Lawmakers argue that the bill strikes a balance between economic growth, tax relief, and infrastructure investment, but it remains to be seen how citizens will experience these reforms in their daily lives.
