A look at recent changes to Iowa tax law, and whether they impact this year’s returns

Background

DES MOINES — Tax documents are beginning to arrive in Iowans’ mailboxes, and soon those Iowans will be filing their taxes.

State lawmakers have made many changes to Iowa’s tax laws in recent years, particularly by reducing state income tax rates. So what should Iowans expect when they see their taxes this year and prepare to file?

What’s changed since

Federal deductibility: While moving to lower state income tax rates, lawmakers also implemented a phaseout of Iowans’ ability to take a deduction on their state taxes of their federal tax payment.

But federal deductibility still lives — for now. For the vast majority of Iowans, this will be the last year they can deduct their federal taxes while filing. Next year, for most Iowans, that option goes away.

Income tax rates: The most recent state income tax overhaul, which was spearheaded by Republican state lawmakers, reduces state income tax rates over four years until it reaches 3.9 percent for everyone.

But those changes did not start until Jan. 1 of this year. So they will not show up on the tax returns that Iowans file this year.

For this year’s tax returns, Iowans will have paid state income taxes at the old rates, covering nine brackets, depending on one’s income ranging from .33 to 8.53 percent. Starting this year, Iowa will have just four tax brackets: the top rate is reduced to 6 percent, and descending income brackets will be taxed 5.7, 4.82 and 4.4 percent. That can be seen on paychecks now, and will show up in next year’s tax filings.

Each year, those numbers will be reduced until 2026, when Iowa will have just one state income tax rate of 3.9 percent.

The changes are expected to save Iowa income taxpayers nearly $2 billion annually — but also reduce the revenues that fund state government by that same amount.

Retirement income: Similarly, this year’s tax filings will still include taxes paid on retirement income earned in 2022.

This year’s filings will not yet show another recent change. Starting Jan. 1, Iowans are no longer paying state taxes on retirement income. Those changes will be seen in next year’s tax filings.

Filings and returns

Kraig Paulsen, director of the state revenue and budget management departments, said he does not expect any issues that would cause state refunds to be delayed this year. He said the revenue department typically issues refunds within 30 days of a tax filing, and that will continue to be the goal this year.

Paulsen said much of that 30-day window is needed to prevent fraud by ensuring the accuracy and legitimacy of filings and refunds.

The Iowa Department of Revenue’s website at tax.iowa.gov has resources to answer frequently asked questions about taxes, forms for emailing tax questions and for tracking refunds.

Comments: (515) 355-1300, erin.murphy@thegazette.com