Iowa Tax: Guide to Income, Sales, Property, and Retirement Taxes

Iowa state flag for Iowa state tax guide — (Image credit: Getty Images)

Navigating the complexities of state taxes can be daunting, but understanding Iowa's tax landscape is essential for residents and newcomers alike.

In this guide, we'll explore key components of The Hawkeye State's tax system, from income and sales taxes to property taxes and retirement benefits.

Iowa state tax: Overview

Iowa residents will see lower tax bills this year, thanks to a drop in the state’s income tax rate. A major tax reform brings the top rate down to a flat 3.9% as of 2026, putting Iowa among the states with the lowest personal income taxes. That is quite a shift from just a few years ago.

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The state also doesn't tax qualified pension income or inheritances, making it especially appealing for retirees. Of course, with lower taxes, there is always the question of how public services will be funded. But for now, let’s take a closer look at Iowa’s changing tax landscape.

[Data for this state tax guide was gathered from several sources including the U.S. Census Bureau, the state’s government website, the Sales Tax Handbook, and the Tax Foundation. Property taxes are cited as a rate percentage rather than the assessed value.]

Iowa income tax

Iowa adopted a single individual income tax rate in 2025, lowering the top rate from 5.7% to a flat 3.8%. That’s significantly lower than the peak rate of nearly 9% about six years ago, when state lawmakers first began reducing the personal income tax.

According to state documents, a flat individual income tax rate of 3.8% is in effect for 2026. Reducing the income tax is expected to bring in nearly $1 billion in tax savings for Iowans within the first two years.

As reported by Kiplinger, the measure adds the state to the 14 states that have a flat income tax rate, which has also earned the state a spot among the lowest income taxes in the nation.

Update: As of 2026, sports betting winnings will be considered as earned income. If federal taxes must be withheld, the sportsbook or payor will withhold income taxes before you get paid.

Iowa retirement taxes

Iowa recently made retirement income tax-exempt for residents 55 and older and eliminated its inheritance tax for tax years 2025 and later.

Social Security: Not taxable
Pensions: Not taxable
401k and IRA Distributions: Not taxable

Iowa sales tax

Still life of a small shopping cart with $1 USD bills

Iowa has a state sales tax rate of 6%. Localities can add as much as 0.94%, and the average combined rate is 6.94%, according to the Tax Foundation.

Groceries: Exempt
Prescription drugs: Exempt
Clothing: Taxable
Diapers and some feminine hygiene products: Exempt

How much are property taxes in Iowa?

In Iowa, the average effective property tax rate is 1.24% (2026).

The property tax cycle in Iowa happens across eighteen months. Residents and property owners get an individual assessed value of their property on January 1. The first half payment for property taxes is due in the fall of the next year, and the remaining portion is paid in the spring.

That means the assessment for January 2025 would be associated with taxes due in the fall of 2026 and the spring of 2027, according to Iowa’s Department of Revenue.

Iowa Property Tax Breaks for Retirees

Iowa introduced a new Homestead Tax Exemption for Claimants 65 Years or Older last year. For the 2025 assessment year, the exemption (amount excluded from a property's taxable value) is worth $6,500.

Additionally, military service tax exemptions were raised to $4,000 in taxable value for assessment years on or after January 1, 2023.

Iowa gas tax

rendering of a yellow car against a yellow background

Iowa has close to the lowest gas tax rates in the nation, making it a good choice for commuters.

Swipe to scroll horizontally

Gasoline	$0.31 per gallon
Diesel	$0.33 per gallon

Source: Sales Tax Handbook

Iowa taxes on alcohol and tobacco

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Iowa tobacco taxes
Product	Tax amount
Cigarettes	$1.36 per pack of 20, $1.70 per pack of 25
Other tobacco products	50% of wholesale price
Medical Marijuana	0%

Source: Sales Tax Handbook

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Iowa alcohol taxes
Product	Tax amount
Beer	$0.19 per gallon
Wine	$1.75 per gallon
Liquor	State Controlled

Source: Sales Tax Handbook

Iowa estate and inheritance taxes

Iowa started phasing out its inheritance tax three years ago by reducing the rate of tax by 20% each year (the original base rates ranged from 5% to 15%).

The tax has been completely repealed as of January 1, 2025.

Gabriella Cruz-Martínez is a finance journalist with 8 years of experience covering consumer debt, economic policy, and tax.

Gabriella’s work has also appeared in Yahoo Finance, Money Magazine, The Hyde Park Herald, and the Journal Gazette & Times-Courier.

As a reporter and journalist, she enjoys writing stories that empower people from diverse backgrounds about their finances, no matter their stage in life.

With contributions from