DES MOINES, Iowa – Gov. Kim Reynolds, R-Iowa, signed HF 2317, the third tax reform bill lawmakers have passed during her five years in office, at JBS in Des Moines. She introduced the legislation at the same location just one month ago.
The new law phases in a 3.9 percent flat tax rate for the individual income tax by 2026. When fully implemented, the state will move from having the nation’s eighth highest individual income tax rate to the fourth lowest.
The governor’s office claims that 98 percent of taxpayers with $10,000 or more taxable income will see a decrease in their tax liability by 2026. They added that low-to-moderate income Iowans would not pay more in taxes. Those who qualify for the Federal Earned Income Tax Credit (EITC) and other available tax credits will continue to receive a tax refund when tax credits exceed the amount of state tax liability.
In 2023, the top rate for those who earn $75,000 or more will drop from 6.5 percent to 6.0 percent. It will drop to 5.7 percent in 2024, matching the rate for those who make between $30,000-$75,000. In 2025, the three two brackets will drop to 4.82 percent, the current rate for those earning $6,000 to $30,000. In 2026, the rate will drop to 3.9 percent regardless of income.
It eliminates the individual income tax on retirement income for joint filers with a net income of $32,000 or less. As a result, the governor’s office says an estimated 294,694 Iowans will see their tax liability eliminated. Also, for farmers age 55 or older who have farmed at least ten years and are retired, this bill allows an option to eliminate the tax on cash rent or crop share agreements for all years the income is earned.
The legislation will also eventually phase in a corporate flat tax of 5.5 percent if corporate income tax revenue exceeds $700,000. Finally, the bill also phases in reducing the amount the state provides from several refundable tax credits.
“When I took office, Iowa had the sixth highest individual income tax rate in the nation at 8.98%. I believed Iowans deserved better,” Reynolds said. “Since then, I’ve worked with the Legislature across multiple sessions to make transformative changes to our tax code, let Iowans keep more of their hard-earned money, and make our state more competitive. With this bill, Iowa is now the fourth lowest for individual income tax rate in the nation. There’s never been a better time in Iowa for bold, sustainable tax reform. This bill rewards work, takes care of our farmers, and supports our retirees, all while protecting key state priorities. Iowans will reinvest these dollars in our economy, communities will prosper, and families will rest a little easier. Once again, we’re putting our faith in Iowans, and they won’t let us down.”
Iowa Senate Majority Leader Jack Whitver, R-Ankeny, also spoke before Reynolds signed the bill.
“Six years ago, when Republicans won the Iowa Senate majority and therefore the trifecta at the capitol, we inherited one of the most complicated and punitive tax codes in the entire country. We were the fourth highest in the nation in individual income tax rates at 8.9 percent. We were 50th in corporate tax rates – the highest in the nation in 2016,” he said.
“But six years ago, we laid out a vision for Iowa, and more specifically, a vision for tax reforms in Iowa. A vision where Iowa is a state that encourages work and encourages investment. A vision where retirees stay in Iowa to be close to their kids and grandkids. A vision of a tax code that is simple, flat and fair to Iowa taxpayers. HF 2317 brings that vision to life,” Whitver added.
Iowa House Speaker Pat Grassley, R-New Hartford, also spoke.
“Iowa is the freedom capital of the heartland, and bills like this send a message all across the country,” he said.
Grassley said that they follow through when Iowa Senate Republicans and Iowa House Republicans make a campaign commitment.
“This is just one more thing that the Legislature has done to uphold those commitments and move the state forward,” he added. “This will move Iowa forward. It is not just about lowering income tax. This is about keeping our retirees in the state.”
Grassley and Whitver indicated that Republicans are not done with tax reform when speaking to the press after the bill signing.
Grassley told The Iowa Torch that other reforms to taxes like the entity tax and franchise tax could be looked at in the future, but not necessarily this session.
“That’s part of the continued broad conversation that we want to continue to have; as a legislature, whatever those specific pieces are in our committees and our chairs will be working on those things. But from my perspective, this is a huge step forward, and as we continue to look at the tax code as a whole, I wouldn’t make a prediction that that’s happening this year. But I expect that to continue to be part of what we’re looking at while we have majorities,” he said.
