Highlights

• Louisiana’s 0.275% corporate franchise tax ends January 1, 2026, after final payment based on 2024 property values
• Standard deductions begin annual inflation adjustments on January 1, 2026, using the Consumer Price Index
• Retirement income exemption for Louisiana residents 65+ doubled to $12,000 and adjusts annually starting in 2026
• Businesses across Louisiana parishes will file final franchise tax returns in 2025 for the 2024 tax year
• Louisiana joins the majority of states without a franchise tax, improving competitiveness with Texas and Florida

Major Louisiana Tax Changes Take Effect January 1: What Families and Businesses Need to Know

Louisiana’s corporate franchise tax officially ends tomorrow, while other tax reforms continue reshaping the financial landscape for businesses and residents across the state.

LAFAYETTE, La. (KPEL News) — The state’s corporate franchise tax officially ends January 1, 2026, completing Governor Jeff Landry’s tax reform package that changed Louisiana’s tax structure throughout 2025.

The franchise tax repeal is the final major piece of tax reform legislation Landry signed in December 2024 as part of his Louisiana Forward initiative. Most changes took effect January 1, 2025, but the franchise tax elimination was delayed one year.

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What Louisiana Businesses Need to Know About Franchise Tax Repeal

Louisiana businesses subject to the franchise tax make their final payment in 2025 based on property values from the 2024 tax year. Calendar year taxpayers file their last CFT-620 corporate/franchise return showing franchise tax calculations for one final time.

The 0.275% tax on net worth penalized business investment regardless of profitability and lacked the caps common in other states with similar taxes. Louisiana previously stood as one of only about a dozen states still imposing franchise taxes.

With the repeal, Louisiana joins the majority of states without franchise taxes. Tax policy analysts say this makes the state more competitive for attracting and retaining businesses, particularly when compared to neighboring states.

Standard Deduction and Retirement Exemption Adjustments Begin

While Louisiana’s flat 3% income tax rate and increased standard deductions took effect in 2025, annual inflation adjustments for these amounts start January 1, 2026.

The standard deduction adjusts based on the Consumer Price Index for All Urban Consumers (CPI-U). Louisiana taxpayers will see slightly higher deductions when filing 2026 tax returns in 2027. Current amounts are $12,500 for single filers and $25,000 for married couples filing jointly.

The retirement income exemption for Louisiana residents age 65 and older doubled from $6,000 to $12,000 starting with the 2025 tax year. This exemption also begins annual CPI-U adjustments on January 1, 2026.

For married couples filing jointly where both spouses are 65 or older and both receive retirement income, each can claim the $12,000 exemption. However, if only one spouse receives retirement income, the exemption is limited to $12,000 total.

How Louisiana’s Tax Reform Affects Different Residents

The tax changes affect Louisiana families and businesses in different ways.

For Louisiana Retirees: The doubled retirement income exemption helps those with income from private pensions, out-of-state public pensions, or retirement savings accounts. Social Security benefits remain fully exempt from Louisiana income tax, as do benefits from Louisiana state retirement systems.

For Louisiana Workers: The flat 3% rate simplified withholding calculations in paychecks throughout 2025. The Louisiana Department of Revenue issued guidance showing employers generally withhold at 3.09% to provide a buffer.

For Louisiana Businesses: Beyond the franchise tax repeal, businesses now operate under the flat 5.5% corporate income tax rate that replaced the previous tiered structure. Louisiana businesses can also elect to expense qualified property and research expenditures immediately.

Timeline of Louisiana Tax Changes

Louisiana’s tax reform happened in two stages:

January 1, 2025: Flat 3% individual income tax rate took effect, replacing graduated rates from 1.85% to 4.25%. Standard deductions increased from $4,500 to $12,500 for single filers. Retirement income exemption doubled to $12,000. State sales tax increased from 4.45% to 5% (temporary through 2029). Flat 5.5% corporate income tax rate replaced graduated structure. Sales tax expanded to digital products and services.

January 1, 2026: Corporate franchise tax officially repealed. Annual inflation adjustments begin for standard deductions and retirement exemptions.

What This Means for Louisiana’s Competitiveness

The tax reform package makes Louisiana more competitive with neighboring states, particularly Texas and Florida, which have no personal income tax. While Louisiana maintains its 3% rate, the simplified structure and increased deductions reduce the tax burden for many residents.

However, the reforms came with tradeoffs. The temporary sales tax increase through 2029 means Louisiana now has the highest average combined state and local sales tax rate in the nation, according to the Tax Foundation. The state sales tax will drop to 4.75% in 2030.

Several tax credits also sunset or face reduced caps, including the Work Opportunity Tax Credit (application window closed June 30, 2025), motion picture production credit (reduced from $150 million to $125 million annual cap), and research and development credit (limited to $12 million per fiscal year).

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Looking Ahead for Louisiana Taxpayers

Louisiana taxpayers filing 2025 tax returns in spring 2026 will be the first to experience the full impact of the flat tax rate and increased deductions. The Louisiana Department of Revenue encourages taxpayers to review their withholding and consider whether additional payments may be necessary.

The inflation adjustments beginning January 1, 2026, show up when Louisiana residents file 2026 tax returns in 2027. The exact amounts depend on CPI-U calculations throughout 2026.

For Louisiana businesses, the franchise tax repeal removes an administrative burden that required tracking Louisiana property values and filing separate franchise returns. Businesses should consult with tax advisors about proper filing procedures for the final 2025 franchise tax return based on 2024 property values.

Governor Landry has said the tax reforms are steps toward his long-term goal of eventually repealing Louisiana’s income tax entirely, though no specific timeline has been announced for such a move.