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Tool | September 2014

State-by-State Guide to Taxes on Retirees

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Iowa

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The Bottom Line
Map of Iowa

NOT TAX-FRIENDLY

The Hawkeye State taxes a considerable amount of retirement income and doesn't offer a low sales-tax rate or other tax trade-offs to make up for it. Its top income tax rate is a steep 8.98%. Single retirees can exclude up to $6,000 of retirement-plan distributions ($12,000 if married) from state income taxes. As of 2014, the phase-out of tax on Social Security benefits is complete and benefits are now free of state income tax.

State Sales Tax

6% (most food items and prescription drugs are exempt). Local taxes can add another 1%.

Income Tax Range

Low: 0.36% (on up to $1,515 of taxable income)

High: 8.98% (on taxable income over $68,175)

Social Security

Benefits are not taxed.

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 if single ($12,000 if married) of 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 assessed at 100% of market value. Allowable growth for taxable valuation is 3%. Local taxing authorities determine a tax rate, expressed in dollars per thousand, and that rate is applied to the assessed value after a state assessment limitation is applied. For example, on a home assessed at $50,000 with an assessment limitation of 50% in an area where the local taxing authority has a rate of $10 per thousand, the tax bill would be $250.

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.

Median property tax on the state's median home value of $122,000 is $1,569, according to the Tax Foundation.

Tax breaks for seniors: A property tax credit is available to residents who meet annual household low income requirements and who are age 65 or older, or totally disabled. For 2014, household income had to be less than $21,698.

Inheritance and
Estate Taxes

Iowa has no estate tax. The inheritance tax ranges from 0% 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, stepchildren, 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.

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