Iowa’s Inheritance Tax Punishes Families

Iowa’s is one of six states that still levies an inheritance tax. This obsolete tax not only punishes the individual who has died, but also punishes the intended recipient. Previous Iowa legislatures have eliminated the inheritance tax for spouses and other lineal beneficiaries. Yet, the tax remains for non-lineal recipients. In past sessions, the Iowa legislature has considered abolishing or gradually phasing out the inheritance tax but to no avail.


Source: Tax Foundation


The inheritance tax impacts all Iowans regardless of their level of income. One Iowa family knows the burden of the inheritance tax all too well. Megan and her husband are a middle-class family with three children. Recently they experienced the loss of a Great Uncle, who left an inheritance to Megan’s three children. Each of the children inherited various amounts of investments, annuities, and CD’s which are to be used to help finance their college education.


Since Megan’s children were not lineal descendants, the family would be responsible for paying inheritance tax. At first Megan and her husband were told they would need to pay $46,000 in taxes. After consulting with their accountant and taking advantage of various tax “loopholes”, their inheritance tax bill was lowered to $22,000. Recently, they sent their inheritance tax payment to the State of Iowa, but they may need to pay more. This does not include the additional fees Megan and her husband had to pay their account to navigate the complexity of the inheritance tax.


Megan’s family shared that their Great Uncle not only worked hard, saved, and built these investments, but he wanted to bless their family because his child had died. This gift will certainly help Megan’s three children pay for their future higher education, but thanks to the inheritance tax it will be much less. Megan’s story is just one example of how the inheritance tax is not only overly complex, but it punished both the hard work of their Great Uncle and his gift to their children.


It is time for the Iowa legislature to step up to the plate and eliminate this dated and burdensome tax. Eliminating the inheritance tax will create a fairer tax code and make Iowa a more tax friendly place.