Iowa lawmakers say no state income tax on federal jobless benefits

DES MOINES - Iowans will not have to pay state income taxes on the temporary federal unemployment compensation they received during the pandemic, under a bill passed unanimously by the Iowa House on Wednesday.

Representatives agreed to add the provision to a Senate-passed measure that exempted federal Paycheck Protection Program grants and loans given Iowa businesses after the pandemic arrived in Iowa last March.

Democrats sought to also exempt state jobless benefits from Iowa income tax, but that effort failed because of its additional cost.

Overall, Senate File 364 will provide up to $115 million in state tax relief to Iowans put out of work because of COVID-19, said Rep. Brian Lohse, R-Bondurant.

Another $13 million would carry over into fiscal 2022, according to House GOP staff, with about $103 million coming from the state's taxpayer relief fund and another $25 million from the state's general-fund surplus.

'This COVID relief package of $115 million is the right thing to do,” Lohse told his House colleagues. 'It's the right mechanism to do it.”

He said the amended relief package, which now returns to the Iowa Senate for consideration, is an attempt to assist Iowa businesses and individuals thrown into turmoil by the pandemic 'in an equitable and meaningful financial way” that was fiscally responsible.

'We realize there's probably never a way that we're going to make them completely whole - either businesses or individuals,” he said.

The House action exempts from individual income taxation the extra unemployment compensation that idled workers received from four federal jobless benefit compensation programs.

But the jobless payments such workers received from the state in 2020 are still subject to Iowa individual income taxes on state returns, which must be filed by April 30.

The Paycheck Protection Program exemptions in the bill are retroactive to last March and run through tax year 2023. The federal jobless benefits tax break is retroactive to Jan. 1, 2020, Lohse noted.

'I'm smiling under my mask because finally a major bill coming through our chamber with bipartisan support,” said Rep. Dave Jacoby, D-Coralville.

'This is a fantastic bill,” he added. 'In fact, from my point of view, this should have been the first bill we did in January. It's much more important than some of the other things that we've tackled in the first six or seven weeks.”

Jacoby said the amended bill contains part but not all of what minority Democrats requested, but said the bill will provide tax relief to more than 200,000 Iowans.

Democrats sought to exempt state unemployment compensation from state income taxes, too, but Lohse said that cost would have been 'considerably larger.”

Jacoby noted that many Iowans are preparing or already have filed their 2020 state income tax forms.

He urged state officials to work quickly in providing the proper notification and forms to those who need to amend their returns, presuming the amended bill wins state Senate approval and is signed into law by Gov. Kim Reynolds.

'Here it is March 3,” Jacoby said. 'A lot of Iowans already have done their taxes. I don't want Iowa to become the state champion for amended returns.”

No shouting

In other action Wednesday, representatives by voice vote approved joint rules for the House and Senate that included a new provision prohibiting demonstrations on the second floor of the Iowa Capitol building.

Rep. Brent Siegrist, R-Council Bluffs, said the new policy would bar shouting, singing, placards and other demonstrations that would disrupt proceedings in the House or Senate chambers or disturb citizen efforts to meet with their legislators in the Capitol rotunda.

Comments: (515) 243-7220; rod.boshart@thegazette.com