When major legislation is passed -and make no mistake, Iowa’s tax reform package is as major as it gets- it’s natural for one to wonder, “What does this mean for me?” We will answer that question for at least a few of the aspects of House File 2317. While these explanations are not meant to be exhaustive, nor do they cover every item in the bill, they do address most of the questions we have been asked so far.
Individual Income Tax Reduction
Iowa currently has nine different tax brackets for individuals, with a top marginal rate of 8.53%, and those will all remain in place for 2022.
For 2023, Iowa will have four tax brackets for individuals, with a top marginal rate of 6.00%.
For 2024, Iowa will have three tax brackets for individuals, with a top marginal rate of 5.70%.
For 2025, Iowa will have two tax brackets for individuals, with a top marginal rate of 4.82%.
For 2026, Iowa will have a single (flat) tax bracket for individuals, with a rate of 3.90%.
Retirement Income Tax Eliminated
Iowa’s income tax on retirement income is repealed in 2023. Retirement income is intended to include money received from pensions, 401(k)s, individual retirement accounts, annuities, deferred compensation plans, and similar retirement programs, by people who are 55 or older. There are additional provisions in the bill that broadly attempt to exempt retirement income for farmers and business owners, as well. A tax advisor will have to determine the exact implications for individual retirees.
Corporate Income Tax Reduction
Iowa currently has four different tax brackets for corporations, with a top marginal rate of 9.8% and those will all remain in place for 2022.
Beginning in 2023, Iowa’s corporate tax rates will begin to be ratcheted down based on a revenue target of $700 million per year. This ratchet effect will continue until Iowa reaches a single, flat corporate tax rate of 5.50%
In addition to cutting corporate tax rates as corporate tax revenue grows, the plan will also phase in reductions to a number of business credits.