Iowa Tax Guide 2026

Personal income tax — the flat-tax transition

Iowa HF 2317 (2022, signed by Gov. Reynolds) scheduled a multi-year transition: • 2023: collapsed brackets, top rate 6.0% • 2024: 4-bracket schedule, top rate 5.7% • 2025: FLAT 3.9% (originally scheduled), then accelerated • 2025+: FLAT 3.8% (post-2024 acceleration, HF 2317 amendments) For 2026, all Iowa taxable income is taxed at 3.8% flat (Iowa Code §422.5). Standard deduction: $2,210 single / $5,450 MFJ (2024 figures, indexed). Iowa offers a federal income tax DEDUCTION historically — under reform, the federal-income-tax-deduction was REPEALED effective 2023 (the deduction was a unique Iowa quirk that allowed taxpayers to deduct federal income tax paid; gone now). No state-level QBI deduction. No AMT.

Retirement income — full exemption for age 55+

Iowa Code §422.7 (as amended by HF 2317 effective 2023) provides a 100% EXCLUSION from Iowa taxable income for retirement income received by taxpayers: • Age 55 or older, OR • Disabled, OR • Surviving spouse of one who would have qualified Qualifying retirement income includes: • IRA distributions (Traditional and Roth) • 401(k), 403(b), 457(b), Keogh, SEP, SIMPLE distributions • Defined benefit pension payments • Disability income (under the disability prong) Social Security: SEPARATELY 100% exempt from Iowa income tax regardless of age (Iowa Code §422.7(31)). This combination makes Iowa one of the most retiree-friendly income tax regimes in the US — competitive with no-income-tax states for retiree migrants whose income is primarily retirement-source.

Sales tax and inheritance tax repeal

State sales tax 6% (Iowa Code §423.2). Local-option sales tax up to 1% in cities/counties that vote it in (most of Iowa); maximum combined statutorily ~7%. Statewide average ~6.94%. Groceries: EXEMPT from sales tax. Prescription drugs: exempt. Clothing: taxable. Most services: exempt (some exceptions: lodging, repair services). Economic nexus (Iowa Code §423.14A): $100,000 in cumulative sales (transaction count removed in 2019). INHERITANCE TAX REPEAL: Iowa was one of the last states with an inheritance tax (5%–15% based on relationship). HF 2317 phased it out 2021–2024 and REPEALED it entirely effective January 1, 2025 — significant for estate planning of Iowa decedents leaving property to nieces/nephews/non-lineal heirs who previously paid 10%–15%. No Iowa estate tax (separate from inheritance tax; estate tax was never a feature).

Property tax — among the higher Midwest rates

Statewide average effective ~1.50% — higher than national average of ~1.07%, driven by Iowa's heavy reliance on local property tax for K-12 funding. Polk County (Des Moines): ~1.61%, Linn (Cedar Rapids) ~1.71%, Scott ~1.50%, Johnson (Iowa City) ~1.83%. Residential rollback: Iowa applies an annual statewide rollback that reduces taxable value to a fraction of assessed value (54.65% for residential, 2025–26 assessment year). This functionally caps year-over-year tax growth despite assessment swings. Homestead credit: small ($4,850 × residential rollback × consolidated rate) — modest dollar benefit. Military exemption: $1,852. Low-income elderly/disabled credit available. HF 718 of 2023 reformed property tax assessment limits and capped certain local levies — gradual impact through 2027.

Business considerations

Corporate income tax: 7.1% top rate (5.5%/7.1% two-tier) for tax years beginning on/after Jan 1, 2026 (Iowa Code §422.33). Under HF 2317, the top corporate rate trigger-drops based on net corporate income tax receipts exceeding $700M — projected to reach 5.5% flat by 2027 if revenue triggers hit. LLC fee: $50 biennial report (Iowa Code §490A.1304). Low maintenance. Apportionment: single sales factor for most industries (Iowa Code §422.33(5)). Iowa PTET: Available as elective workaround under HF 352 of 2023 — entity pays at flat individual rate (3.8% 2026), owners receive refundable credit. No gift tax. No franchise tax on LLCs (just biennial report).

Worked example: Margaret Sullivan, Des Moines retiree (single, age 67, 2026)

Margaret receives $32,000 Social Security, $48,000 from her former employer's defined-benefit pension, and $15,000 of Traditional IRA distributions. Plus $200,000 long-term capital gain from selling her late husband's S-corp stock (held 12 years).

Federal: Social Security partially taxable, IRA fully ordinary, pension fully ordinary, LTCG at 15%/20% brackets + possible NIIT. Iowa: Social Security: 100% exempt (§422.7(31)) Pension $48,000: 100% exempt (§422.7, age 55+ exclusion) IRA $15,000: 100% exempt (qualifying retirement income, §422.7) LTCG $200,000: included in Iowa income (S-corp stock sale, not a qualifying farmer/retired-farmer exclusion) Iowa AGI: $200,000 Less standard deduction: $2,210 Iowa taxable: $197,790 Iowa tax at 3.8% flat: $7,516 Iowa property tax on $350k Des Moines home @ 1.61% × ~54.65% rollback = ~$3,080/yr For comparison, Margaret in California would pay: ~$15,000 state income tax on retirement income plus LTCG; in Iowa, she pays $7,516 — and her retirement income passes through TAX-FREE.

Statute references

• Personal income tax 3.8% flat — Iowa Code §422.5 (HF 2317 of 2022)
• Retirement income exclusion (age 55+) — Iowa Code §422.7
• Social Security exemption — Iowa Code §422.7(31)
• Sales tax 6% — Iowa Code §423.2
• Economic nexus (Wayfair) — Iowa Code §423.14A
• Corporate income tax — Iowa Code §422.33
• PTET election — Iowa HF 352 of 2023
• Inheritance tax repeal effective 2025 — HF 2317 of 2022

Related pages

• State Tax Comparison →
• Retirement Planner →
• Capital Gains Tax →