Capitol Notebook: Iowa lawmakers advance lifting taxes on tips, overtime pay

Lawmakers on the Iowa House Ways and Means Committee unanimously advanced legislation Wednesday that would exempt tips and overtime pay from state income taxes.

Under House File 268, all earned income from cash tips would be exempted from Iowa’s 3.8 percent flat income tax rate. The tax exemption would go into effect next January and would apply to the 2026 tax year

“We are showing our appreciation to the commitment of these valued service workers who are part of not just our economy and workforce, but they're part of our community,” said Rep. David Young, a Republican from Van Meter, a Republican from Van Meter.

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The bill would place income tax exemptions on $25,000 or under in earned tips and would apply to individuals making up to $155,000

Iowa’s minimum wage is set at the federal minimum 0f $7.25 an hour. For tipped workers who make over $30 in tips per month, the minimum wage is $4.35 an hour.

Roughly 4 million workers, or less than 3 percent of the U.S. workforce, regularly earn tips through their jobs, according to the Budget Lab at Yale University.

Democratic Rep. Dave Jacoby of Coralville said it would help those working in the service industry, including his two daughters.

“The Jacoby family knows what it's like to work in the food service and service industry, and when they're (Jacoby’s daughters) working their way through high school and paying them most of their way through college, it became apparent to us how much those tips were of value to them, to help pay tuition, help pay for books and help pay for rent,” Jacoby said.

House File 110, sponsored by Republican Rep. Michael Sexton of Rockwell City, would exempt overtime pay from state income taxes. Sexton said lifting taxes on overtime pay was a top issue he’s heard about from his constituents.

“Things that I heard a lot in this last campaign season was that folks were a little disappointed when they receive their check from working overtime,” Sexton said during the committee meeting. “Our citizens are being asked to do more because we have a shortage of workers, and so they are asked to work overtime to keep our ethanol plants and our factories and our construction projects going.”

House GOP sales tax breaks bills advance

Separate bills that would exempt toilet paper, laundry detergent and dietary supplements from state sales tax advanced through the Iowa House’s committee on tax policy.

The House Ways and Means Committee gave unanimous approval Wednesday to the respective proposals, House Files 963, 964 and 966. That makes them eligible for debate by the full Iowa House.

The proposals do not have companion bills in the Iowa Senate.

House Republicans introduced the bills as ways to address some everyday cost of living expenses for Iowans.

“It’s a good bill for Iowans and Iowa families and helps keep a little bit more money in their pockets on their day-to-day expenses,” Rep. Christian Hermanson, R-Mason City, said during the meeting.

Iowa’s state sales tax is 6 percent without the addition of voter-approved local-option sales taxes in some communities.

Radon mitigation tax credit moves forward

Members of the Iowa House Ways and Means Committee unanimously advanced a bill that would create a tax credit for radon mitigation systems as legislators grapple with the state’s rising rates of cancer.

Iowa has the fastest-growing rate of new cancers and ranks second-highest — behind Kentucky — in cancer rates compared with other states, according to the Iowa Cancer Registry.

Radon is a radioactive gas that can enter residences through floors, walls and foundations, but is most concentrated in basements. Exposure to it is a leading cause of lung cancer among non-smokers, according to the U.S. Environmental Protection Agency.

House File 211 would create a radon mitigation system tax credit for up to $1,000, which would apply retroactively to Jan. 1, 2025, for tax years beginning on or after that date.

“This is what's going to save lives. Iowa is one of two states in the country in which every single one of our counties has the highest level of radon risk,” Democratic Rep. Austin Baeth of Des Moines said. “It's estimated that 70 percent of our homes have an elevated radon level — 70 percent, yet only 1 in 15 homes have been checked in the last decade.”

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New tourism fund moves forward

Iowa would establish a fund to incentivize events that attract tourism in the state under legislation advanced Wednesday by a Senate subcommittee.

Senate File 621 would create the Iowa Major Events and Tourism Program and fund to administer the program.

“We're sitting back watching all these other states host events like NCAA, NBA, MLB, Taylor Swift, concerts, things like that,” said Rep. Carrie Koelker, R-Dyersville. “We're sitting back going, ‘Why are eyes not on Iowa?’ It’s because we don't have any funds to participate in this bidding.”

The legislation would appropriate $15 million to the new fund from the current Sports Wagering Receipts Fund and establish a program to provide up to 50 percent of matching financial assistance to Iowa nonprofit organizations that promote economic development and tourism during the bidding process for major athletic contests, conventions, music festivals and other large events.

To receive the financial assistance, an organization would have to submit an economic analysis of the event that could include projected hotel occupancies and attendees.

Gazette-Lee Des Moines Bureau