State-by-State Guide to Taxes on Retirees
Tool | December 2021

Iowa State Tax Guide for Retirees

State tax rates and rules for income, sales, property, estate, and other taxes that impact retirees.

Iowa

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The Bottom Line
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Least Tax-Friendly

Property taxes in Iowa are as high as the corn. That's the main reason why the Hawkeye State gets a poor tax rating for retirees. The median property tax rate in Iowa is the 11th-highest in the nation. That certainly doesn't help homeowners in Iowa.

Income taxes are on the high end in Iowa, too. That's especially so for retirees with an above-average income. Plus, over 200 school districts and Appanoose County add their own income taxes on top of the state-level tax. But relief is on the way in the form of reduced state income tax rates over the next few years.

Iowa sales taxes are about average. There's also an inheritance tax in Iowa, which your heirs might have to pay.

Income Tax Range

Low: 0.33% (on up to $1,676 of taxable income)

High: 8.53% (on taxable income over $75,420).

Alternative tax rates and computation methods are allowed for certain lower-income taxpayers. Iowa also has local income surtaxes used for schools and emergency medical services.

For 2022, the lowest rate applies to taxable income up to $1,743, while the highest rate applies to taxable income over $78,435.

Beginning in 2023, the lowest Iowa personal income tax rate will be 4.4% (on up to $6,000 of taxable income for single filers and up to $12,000 of taxable income for joint filers), while the highest rate will be 6% (on more than $75,000 of taxable income for single filers and more than $150,000 of taxable income for joint filers). The top rate will drop to 5.7% in 2024 and then to 4.82% in 2025. Starting in 2026, a flat rate of 3.9% will apply.

Taxation of Social Security Benefits

Social Security benefits are not taxed by the state.

Tax Breaks for Other Retirement Income

Until 2023, taxpayers age 55 or older can exclude up to $6,000 ($12,000 for joint filers) of federally-taxed income from a pension, annuity, self-employed retirement plan, deferred compensation, IRA, or other retirement plan. Beginning in 2023, all retirement income is exempt for taxpayers who are at least 55 years old.

Military pensions and Railroad Retirement benefits are fully exempt.

Sales Tax

6% state levy. Localities can add as much as 1%, and the average combined rate is 6.94%, according to the Tax Foundation.

Groceries: Exempt
Clothing: Taxable
Motor Vehicles: Exempt from ordinary sales tax, but subject to 5% one-time registration fee
Prescription Drugs: Exempt

Real Property Taxes

In Iowa, the median property tax rate is $1,561 per $100,000 of assessed home value.

A property tax credit of up to $1,000 is available to residents age 65 or older. For 2022, the program is limited to those with a 2021 household income less than $24,354. In addition, beginning in 2022, special rules are used to calculate the credit for residents who are at least 70 years old with an annual household income of not more than 250% of the federal poverty level.

Annual Car Taxes and Fees

An annual vehicle registration fee based on the car's weight and age is imposed.

Estate and Inheritance Taxes

Beginning in 2021, Iowa started phasing out it's inheritance tax over a five-year period by reducing the rate of tax by 20% each year (the original base rates ranged from 5% to 15%). For 2022, Iowa's inheritance tax ranges from 3% to 9%, depending on the amount of the inheritance and the relationship of the recipient to the decedent. However, no tax is due on property left to a surviving spouse, stepchildren, lineal descendants (children, grandchildren, etc.) or lineal ascendants (parents, grandparents, etc.). In addition, no tax is due if the estate's net value is less than $25,000. For 2022, brothers, sisters, sons-in-law and daughters-in-law owe 3% to 6% in tax, depending on the value of the property they inherit. Uncles, aunts, nieces, nephews and all other people inheriting property in 2022 are taxed at rates ranging from 6% to 9%. The tax is completely repealed on January 1, 2025.