Katelyn Washington
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 will bring the top rate down to a flat 3.8 percent in 2025, which puts Iowa among the states with the lowest personal income taxes. That is quite a shift from just a few years ago.
The state also does not 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.]
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Iowa income tax
Iowa adopted a single individual income tax rate in 2025, which lowers the income tax from its top rate of 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 3.9% is scheduled to go into effect in 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, it's also earned the state a spot among the lowest income tax in the nation.
Additionally, there is an income surtax for schools which is a local option tax based on the taxpayer’s Iowa income tax liability. For 2025, that should equal a surtax of 2.5% of your state individual income tax liability.
Iowa income taxes in retirement: All retirement income is exempt for taxpayers who are at least 55 years old, there is also no inheritance tax as of 2025.
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.
Income Tax on Taxable Income: High of 5.7% for 2024 (on more than $31,050 for single filers and more than $62,100 for joint filers)
For 2025, Iowa moved to a flat tax rate of 3.8%.
- Social Security: Not taxable
- Pensions: Not taxable
- 401k and IRA Distributions: Not taxable
Iowa sales tax
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 1.40%.
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 fall 2026 and 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
Iowa has close to the lowest gas tax rates in the nation, making it a good choice for commuters.
Gasoline | $0.31 per gallon |
Diesel | $0.33 per gallon |
Source: Sales Tax Handbook
Iowa taxes on alcohol and tobacco
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
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%).
For 2024, Iowa's inheritance tax ranged from 2% to 6%, 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.
The tax has been completely repealed as of January 1, 2025.
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