(The Center Square) – Iowa’s top marginal state individual income tax rate, as of January 3, is higher than that of most states.
Like most states, Iowa has a graduated-rate income tax, according to a report from Tax Foundation. While its top rate, six percent, is lower than that of Minnesota (9.85 percent), Wisconsin (7.65 percent) and Nebraska (6.64 percent), South Dakota, Illinois and Missouri are far from the only states where the highest income earners pay a lower percentage.
South Dakota is one of the seven states with no income tax. While as of June 2017, Illinois taxpayers can’t claim personal exemption if their gross income exceeds $250,000 ($500,000 for married couples filing jointly), the state has a flat rate of 4.95 percent. Missouri’s top rate is 4.95 percent, which is for married or single filers who make more than $7,847.
Iowa legislators changed the state’s tax laws, however. As the report noted, Iowa enacted comprehensive tax reforms in 2018, 2021 and 2022. In 2022, the top bracket rate was 8.53%, which applied to households that earned more than $75,435.
“Many of these reforms will continue phasing in over the coming years,” the report said.
For example, starting this year, Iowa has four income tax rates. Iowa had had nine income tax brackets since at least 2015, according to the report.
In 2023, the top rate dropped from 8.53 percent to six percent. Come 2026, Iowa will shift to a flat tax of 3.9 percent, so its rate is lower than those of most other states when that happens. The 3.9 percent rate is still higher than Indiana’s, Pennsylvania’s, North Dakota’s and Arizona’s rates in the report.
Effective tax year 2023, the state’s repealing the standard deduction and state deduction for federal taxes paid, broadening the base to help pay for rate reductions.
As of January 1, single filers pay 4.4 percent If they make up to $6,000, 4.82 percent if they make between $6,000 and $30,000, 5.70 percent if they make between $6,000 and $75,000, and six percent if they make more than $75,000. Married filing jointly brackets are doubled. The state doesn’t have a standard deduction. Personal exemptions are $40 for single filers, $80 for couples and $40 for a dependent.
The report excludes local income taxes, which 11 states have. Iowa’s average local income tax is 0.11 percent.
Arizona, Colorado, Idaho, Illinois, Kentucky, Michigan, Mississippi, New Hampshire, North Carolina, Pennsylvania, Utah and Washington currently have flat income tax, though New Hampshire’s flat tax solely applies to interest and dividends income and Washington only taxes capital gains income.
The highest marginal state individual income tax rates are those of California (13.3 percent), Hawaii (11 percent) and New York (10.9 percent). DC and New Jersey both have a 10.75 percent tax rate for the highest income earners.
Hawaii has 12 graduate-rate income tax brackets, which is the most of any state.
