Iowa taxpayers will start seeing income tax relief in just a few weeks as a result of the historic tax reform the legislature passed and Governor Kim Reynolds signed into law this year.
At this moment, Iowa has a progressive income tax, with nine brackets topping out at 8.53 percent. In 2023, this will change to four brackets with a top rate of 6.5 percent. By 2026, Iowa will transition to a 3.9 percent flat tax. Retirees will also see relief with retirement income not subject to state taxation in Iowa as soon as the clock hits midnight this December 31.
Additionally, Iowa’s corporate tax rate of 9.8 percent will be lowered to 8.4 percent in the coming year. The corporate tax rate will eventually phase down to a flat 5.5 percent. This is in addition to the continuing phase-out of the inheritance tax.
With a healthy state budget, lower income and corporate tax rates, the elimination of retirement income tax, and the legislature eyeing property tax reform, 2023 should be a great year for taxpayers.
The State Revenue Estimating Conference (REC) met on December 14, 2022, to evaluate the current (FY23) and next (FY24) fiscal years. This estimate establishes limits that must be followed by both the Governor and by the Legislature in developing the State’s budget.
Even in the face of inflation and a workforce shortage, the state of Iowa is maintaining a strong financial situation with General Fund revenue projections increasing from October’s estimate by $81.1 million for the current fiscal year.
With the phase-in of the historic 2022 tax cuts in January, as long as spending is under control, the state will continue to be in a strong fiscal position to provide the core government services Iowans expect while continuing to lower taxes and spur economic growth.
Property taxes are the most hated tax in Iowa. Recognizing this, the Iowa legislature has vowed to make property tax relief a priority this coming legislative session. But what can be done?
In January, ITR Foundation will be releasing its Property Tax Toolkit with solutions to the growing property tax problem in Iowa. Be on the lookout for this in a future newsletter and on our website at ITRFoundation.org.