Iowa Governor signs tax reform bill

Iowa Governor Kim Reynolds signed a tax reform bill into law on May 30.

2018 personal income tax changes. Changes that affect the 2018 tax year include:

  • the earned income tax credit would be tied to the Internal Revenue Code (Code) as in effect on January 1, 2016;
  • changes made by the federal Tax Cuts and Jobs Act (P.L. 115-97) regarding small business accounting methods, the termination of partnerships, beneficiaries of small business trusts, S corporation conversions, repeal of a special rule permitting recharacterization of Roth IRA conversions, and extended rollover period for qualified plan loans, would apply;
  • creation of a tax-free charitable IRA distribution for some individuals over 70.5 years old; and

2019 individual, corporate and franchise tax changes. The Code conformity date was updated to March 24, 2018, for 2019. In 2020, the law permanently couples with the Code for some personal and corporate income tax.
Future contingent personal income tax rate reductions and other changes that would take effect January 1, 2023 are not discussed. The changes would only take effect if certain revenue targets are met.
Personal Income Tax: For taxpayers, the new rate on taxable income of:

  • $0 but not over $1,000 is 0.33%;
  • $1,000 but not over $2,000 is 0.67%;
  • $2,000 but not over $4,000 is 2.25%;
  • $4,000 but not over $9,000 is 4.14%;
  • $9,000 but not over $15,000 is 5.63%;
  • $15,000 but not over $20,000 is 5.69%;
  • $20,000 but not over $30,000 is 6.25%;
  • $30,000 but not over $45,000 is 7.44%; and
  • over $45,000 would be 8.53%.

The rates will be adjusted for inflation.
Taxpayers would need to:

  • add back the federal personal exemption deduction;
  • add back Iowa income tax deducted when computing federal tax;
  • subtract federal income taxes according to existing state law; and
  • make adjustments based on the amount of the qualified business income deduction allowed under Code Sec. 199A. (S.F. 2417, Laws 2018, approved May 30, 2018, and effective as noted above.)

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