Iowa Tax Guide 2025

Explore Iowa's 2025 state tax rates for income, sales, property, retirement, and more. Learn how Iowa compares nationwide.

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

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

Des Moines Iowa

(Image credit: Getty Images)

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

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

(Image credit: Getty Images)

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?

little model house on a table

(Image credit: Getty Images)

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

rendering of a yellow car against a yellow background

(Image credit: Getty Images)

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

Swipe to scroll horizontally
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

Swipe to scroll horizontally
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%).

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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 Gabriella Cruz-Martínez is a seasoned finance journalist with 8 years of experience covering consumer debt, economic policy, and tax. Before joining Kiplinger as a tax writer, her in-depth reporting and analysis were featured in Yahoo Finance. She contributed to national dialogues on fiscal responsibility, market trends and economic reforms involving family tax credits, housing accessibility, banking regulations, student loan debt, and inflation. 

Gabriella’s work has also appeared in 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. 

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