Understanding Idaho Income Tax

Understanding Income Tax: A Data-Driven Perspective

Income tax directly affects household budgets, business growth, and overall economic stability. Here’s a snapshot of Idaho’s income tax landscape and how it compares to historical trends and other tax revenue sources:

• State Income Tax Today: Idaho has an individual income tax rate of 5.695% charged on all income except the first $2,500 per person. House Bill 40, which passed with large margins in the House and the Senate will reduce that rate to 5.3%, if it is signed by the governor.  I testified in favor of this bill on the Senate floor.  In 2011, the rate was 7.6%, and from there the legislature has decreased it somewhat steadily at a pace averaging about 0.15% per year.  HB40 provides taxpayers the largest state income tax decrease ever.  This bill also exempts both precious metal bullion and monetized bullion from capital gains and losses and expands the income tax exemption on military pensions.
• Comparison with Federal Income Tax: Idahoans are also subject to federal income taxes. These are highly progressive, with rates ranging from 10% to 37% depending on income bracket. Recent discussions at the federal level about potential tax code changes could impact Idaho residents, particularly small business owners and middle-income households.
• State Capital Gains Tax: Idaho treats capital gains as ordinary income, applying the current income tax rate on sales of various resources which have appreciated in value. This includes precious metals.

Comparing Revenue Sources:

Historically, Idaho has relied heavily on income tax as a primary revenue source. However, in recent years the fiscal burden has been increasingly spread out over multiple sources:

• Income Tax Revenue accounts for approximately 40% of total state revenue.
• Sales Tax Revenue has seen steady growth, contributing roughly 35% of state revenue.
• Property Tax Revenue remains a key but less flexible component of the overall tax framework.  I have sponsored a bill (H0304) that will provide additional property tax relief.  That bill passed in the House (68-0) and should soon be on the Senate floor.  https://legislature.idaho.gov/wp-content/uploads/sessioninfo/2025/legislation/H0304SOP.pdf