On May 5, 2018, the Iowa Senate and House passed the Iowa Tax Reform Bill (Senate Filing 2417), and Governor Kim Reynolds signed the bill into law at the end of the same month. It is the largest tax cut in Iowa’s history and contains tax changes that will affect the 2018 tax year. This bill will continue to impact tax law up to 2023, subject to certain revenue triggers at the state level.
The Iowa Tax Reform Bill equals $2.16 billion in tax relief to individual and corporate taxpayers over this six-year period. For individuals, the bill reduces rates and also collapses the former nine brackets to just four. On the corporate side, all four brackets of the corporate income tax rate will be reduced in 2021. The top rate will move from 12 percent to 9.8 percent.
Other Important Changes to Iowa Tax Law
- In 2019, tax rates will be reduced, with a top rate of 8.53 percent.
- Iowa individual income tax laws will generally conform to federal tax code beginning in 2019.
- In 2023, the following will be implemented, subject to revenue triggers:
- Brackets will reduce to a four-bracket system, and larger rate reductions will occur. This includes rates of 4.4 percent on income up to $6,000, 4.82 percent on income up to $30,000, 5.7 percent on income up to $75,000 and 6.5 percent on income above $75,000.
- The income tax starting point will also shift to federal taxable income — fully incorporating federal, itemized and standard deduction amounts.
- Alternative minimum tax will be eliminated.
- Iowa corporate income tax rates will decrease beginning in 2021. This includes rates of 5.5 percent for income up to $100,000, 9 percent for income between $100,001 and $250,000, and 9.8 percent for income over $250,000.
- Corporate alternative minimum tax will also be eliminated in 2021.
- Section 179 increases the expense limit to $70,000 in 2018, with a $280,000 phase-out, and $100,000 in 2019, with a $400,000 phase-out.
- In 2019, taxpayers will be able to deduct 25 percent of their federal qualified business income deduction from their Iowa taxable income. This percentage increases to 50 percent in 2021 and to 75 percent in 2022. If revenue triggers are met in 2023, the deduction percentage will ultimately become 100 percent of the federal deduction.
Furthermore, on January 1, 2019, this bill will expand the sales and use tax base to include digital goods, ride-sharing services, subscription services, online marketplaces and online travel websites. Finally, geothermal energy systems credits will also be eliminated on January 1, 2019.
Contact us for more in-depth information on these upcoming Iowa tax law changes.