A Quick Guide to Iowa's New Tax Structure
On March 1, Governor Reynolds signed a large tax cut, House File 2317, into law. The legislation closely mirrored the Governor’s initial tax proposal outlined in her Condition of the State address in early January 2022. The following provisions will be phased into law between now and 2026. Supporting pro-growth tax policies is a featured priority for The Partnership in 2022.
Individual Income Flat Tax
Over the course of the next four years beginning in Tax Year 2023, Iowans will see their individual income tax burden reduced. By Tax Year 2026, all Iowans making above $10,000 or more of taxable income will see an individual income tax rate of 3.9%.
Currently, Iowa’s Tax Year 2022 top individual income tax rate is 8.53% for income over $78,435 and under the 2018 tax bill, Iowa’s Tax Year 2023 top tax rate was slated to be 6.5% for income over $75,000. The new legislation will strike previously passed rates following the passage of this bill.
This legislative change will also benefit entities structured as an LLC or an S-Corp, decreasing the tax liability for many small businesses.
Corporate Income Tax Rate
A longtime priority of The Partnership is a simplification of Iowa’s corporate income tax rate, making this legislation a policy win for Members and Investors. The legislation drops the corporate tax rate from 9.8% to a flat 5.5%, phased in as certain revenue thresholds are met.
Retirement Income Tax Exemption
The legislation exempts all retirement income for disabled Iowans and those over age 55, effective for Tax Year 2023.
Additional Tax Exemptions
The bill removes capital gains tax on the sale of stock from employee stock ownership plans (ESOPs), exempts total net income received by a retired farmer on certain property and lastly, the bill modifies the farm capital gains income exemption on real property.
Tax Credit Changes
The legislation makes changes to the following tax credits:
Research Activities Tax Credit
- High-Quality Jobs Tax Credit
- Geothermal Heat Pump Tax Credit
- Endow Iowa Tax Credit
- Tax Credit Refundability lowered in some programs
For information about these changes and the calculations, see the Iowa Legislative Services Agency Fiscal Note here.
The Partnership's Public Policy team engages with local, state and federal officials to create public policy that generates economic growth, business prosperity and talent development in Greater Des Moines (DSM). The Partnership is a nonpartisan organization.