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Tool | August 2013

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. Single retirees can exclude up to $6,000 of retirement-plan distributions ($12,000 if married) 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% (on up to $1,494 of taxable income)

High: 8.98% (on taxable income over $67,230)

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. Income is generally calculated as one-half of Social Security benefits, plus all other taxable income. For higher-income residents, only 11% of Social Security benefits will be taxed in 2013. And in 2014 and beyond, Social Security benefits will be tax-free.

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 reduced from 4% to 3% in 2013. 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 whose total household income is less than $19,503 and who are age 65 or older, or totally disabled.

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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