Government

Iowa's new income tax law: how it works

Iowa Gov. Kim Reynolds (right) hands a ceremonial pen to MobileDemand employee Laura Kinney (left) and other employees including Don Claassen (second from left) and Mark Kuboushek (second from right) after signing the tax reform bill, Senate File 2417, into law in the offices of MobileDemand, 1501 Boyson Square Dr., in Hiawatha, Iowa, on Wednesday, May 30, 2018. (Jim Slosiarek/The Gazette)
Iowa Gov. Kim Reynolds (right) hands a ceremonial pen to MobileDemand employee Laura Kinney (left) and other employees including Don Claassen (second from left) and Mark Kuboushek (second from right) after signing the tax reform bill, Senate File 2417, into law in the offices of MobileDemand, 1501 Boyson Square Dr., in Hiawatha, Iowa, on Wednesday, May 30, 2018. (Jim Slosiarek/The Gazette)

The Gazette

The GOP-passed tax-cut agreement signed into law Wednesday will be phased in, provided that economic triggers are met before key steps take effect.

Some of the law’s provisions include:

• Triggers are based on reaching or exceeding an annual net general fund growth of tax receipts of 4 percent.

• The law provides tax relief to farmers and small-business owners as well as individuals.

• Federal deductibility — that is, deducting federal tax liability from state returns — for corporate income taxes is slated to be eliminated by tax year 2021, with some exceptions. The phaseout for individual income taxes will be complete by 2023.

• The nine income brackets used for Iowa income taxes now range from 0.36 percent for annual taxable income of $1,628 or less to the top rate of 8.98 percent for taxable incomes over $73,260. It will be revamped to 0.33 percent at the low end, up to a top rate of 8.53 percent in tax years 2019 and 2020, according to a state analysis.

• When fully implemented, as soon as 2023, the plan will reduce the number of individual income brackets from the nine to four.

• The four new brackets will begin with a low rate of 4.4 percent for incomes of 6,000 or less and have a top rate of 6.5 percent for Iowans making $75,000 or more.

• The top corporate rate will be lowered to 9.8 percent from the current 12 percent.

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