IOWA
Return to Retiree Tax Map
NICKNAME
The Hawkeye State
BOTTOM LINE: NOT TAX-FRIENDLY
Iowa taxes a fair share of retirement income and doesn’t offer a low sales-tax rate or other tax trade-offs to make up for it. Retirees can exclude up to $6,000 of retirement-plan distributions from state income taxes. Although Iowa is phasing out its tax on Social Security benefits, the state still taxes a portion of benefits -- the phase-out won’t be complete until 2014. Its top income-tax rate is a steep 8.98%.
STATE SALES TAX
6% (most food items and prescription drugs are exempt). Local taxes can add another 1%.
INCOME-TAX RANGE
Low: 0.36% (up to $1,469 of taxable income)
High: 8.98% (on taxable income over $66,105)
SOCIAL SECURITY
Iowa is implementing a gradual phase-out of its tax on Social Security income. All benefits are tax-free for people with income under $25,000 on a single return or $32,000 on a joint return. For higher-income residents, only 23% of benefits will be taxed in 2012. In 2013, only 11% of Social Security benefits will be taxed. And in 2014 and beyond, Social Security benefits will be tax-free in Iowa.
EXEMPTIONS FOR OTHER RETIREMENT INCOME
Taxpayers 55 or older or disabled (or a surviving spouse or a survivor having an insurable interest in an individual who would have qualified for the exclusion during the year) can exclude as much as $6,000 in taxable income from a pension, annuity, distributions from an IRA or self-employed retirement plan, deferred compensation or other retirement-plan benefits. Out-of-state government pensions qualify for exemptions.
PROPERTY TAXES
Residential property is taxed at 100% of assessed market value across the state. Local taxing authorities determine a tax rate, expressed in dollars per thousand, and that rate is applied to the assessed value to arrive at the tax bill. For example, on a home assessed at $50,000 in an area where the local taxing authority has a rate of $10 per thousand, the tax bill would be $500.
A homestead tax credit is given to owners who occupy the property for at least six months of each year and actually live on the property on July 1. The current credit is equal to the tax levy on the first $4,850 of the actual value.
Tax breaks for seniors: A property-tax credit is available to residents whose total household income is less than $20,906 in 2012 and who are age 65 or older, or totally disabled.
INHERITANCE AND ESTATE TAXES
Iowa has no estate tax. The Iowa inheritance tax ranges from 5% to 15% depending on the amount of the inheritance and the relationship of the recipient to the decedent, with these exceptions: No tax is due on property left to a surviving spouse or to lineal descendants (children, grandchildren, etc.) or lineal ascendants (parents, grandparents, etc.), and no tax is due if the estate’s net value is less than $25,000.
Visit RetirementLiving.com for a complete rundown of taxes in Iowa.
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