Iowa’s New Tax Reform

Date April 7, 2022
Article Authors

The State of Iowa is making national headlines with tax reform, which includes a double flat tax: a 3.9 percent single-rate individual income tax and a 5.5 percent flat corporate income tax. But the state’s new tax code is also attracting attention for what it doesn’t include: inheritance taxes or retirement income taxes, as well as alternative minimum taxes and some farm rental income taxes. On the chopping block: several tax credits.

According to a March 14 memo from the Tax Foundation, a Washington, D.C.-based think tank that monitors governments’ tax and spending policies, Iowa is “forgoing $1.65 billion a year in revenue by FY 2027, when reforms have fully phased in.” But, based on current revenue forecasts, the memo continued, “state lawmakers believe that this can be accomplished out of future revenue growth without even dipping into a taxpayer relief fund with a balance surging toward $2 billion.”

The reform means that Iowa will leave retirement income from Roth and traditional IRAs untaxed. The new policy “does little to benefit the state’s overall economic competitiveness,” The Tax Foundation claimed. “It may induce more retirees to stay in state, potentially a welcome policy goal in its own right, but that is separate from any goal of promoting economic growth.”

Iowa Gov. Kim Reynolds (R) announced passage of the new tax bill as she addressed the nation in the Republican rebuttal to the President Biden’s first State of the Union address on March 1. “Today, I signed legislation that eliminates Iowa’s tax on retirement income and sets our tax rate at 3.9 percent,” she boasted. “That’s less than half of what it was just four years ago.”

If you have questions about the new regulation, HBK’s SALT practice can assist you. You can contact HBK’s SALT Advisory group at

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