Iowa Income Tax Modification
Updated July 7 at 2:00 p.m.
On June 16, 2021 Governor Kim Reynolds signed Senate File 619 (SF 619), which modifies Iowa’s income tax. Below is a summary of the bill’s tax law changes and effective dates.
Bonus Depreciation
Iowa now couples with federal law bonus depreciation. This change applies to fixed assets placed in service on or after January 1, 2021.
Business Interest Deduction (Section 163(j) Limitations)
Beginning for tax years on or after January 1, 2021, Iowa decouples from federal law on the 163(j) interest expense limitation, which limits the amount of interest expense that can be claimed as a business expense deduction.
Pass-through Entities with Non-Iowa Resident Members
Beginning for tax years on or after January 1, 2022, Pass-through entities will be required to file an Iowa composite tax return on behalf of all Iowa nonresident members. The pass-through entity will report and pay the applicable Iowa income or franchise tax at the maximum rate according to the respective members’ share of income.
Guidance for Fiscal Year PPP Loan Recipients
Fiscal year taxpayers who received a PPP loan in a tax year beginning in 2019 will be able to deduct expenses paid with the loan proceeds in the year it is forgiven, similar to calendar year taxpayers. Fiscal year taxpayers should consider amending their 2019 Iowa tax return if these additional expenses were not previously deducted.
Exclusion for COVID-19 Grants
The bill exempts corporations and individuals from Iowa tax related to COVID-19 related grants issued between March 17, 2020 through December 21, 2021. Grants include those administered by the Economic Development Authority, Iowa Finance Authority, Department of Agriculture, Iowa Livestock Producer Relief Fund, and Iowa Beginning Farmer Debt Relief Fund. Taxpayers should consider amending their 2020 Iowa tax return if they previously included these grants as income.
Inheritance Tax Phase-Out
For those dying on or after January 1, 2021, the bill phases out the effective inheritance tax rate by 20% over the course of four years, eventually eliminating the tax for those dying on or after January 1, 2025.
Beginning Farmer Tax Credit
Expansion of the Beginning Farmer Tax Credit program to include the classification of buildings as agricultural assets.
Individual income tax rates
The bill eliminates the contingent revenue triggers enacted in 2018 and will automatically lower the individual tax rates in 2023. See chart below.
|
Married filing joint |
Rate |
All other filers |
Rate |
|
$0 – 12,000 |
4.40% |
$0 – 6,000 |
4.40% |
|
$12,001 – 60,000 |
4.82% |
$6,001 – 30,000 |
4.82% |
|
$60,001 – 150,000 |
5.70% |
$30,001 – 75,000 |
5.70% |
|
Greater than $150,000 |
6.50% |
Greater than $75,000 |
6.50% |
Iowa individuals will no longer be allowed to deduct federal income tax payments in 2023 and beyond. Line 31 of the Iowa income tax return currently allows taxpayers to deduct any federal income tax payments made in the current tax year. This will no longer be allowed in 2023 and beyond.
Iowa Child and Dependent Care Credit
Beginning January 1, 2021, taxpayers with income up to $90,000 will be eligible for a Child and Dependent Care Credit equal to 30% of the federal credit.
Please consult your tax advisor if you have questions or if you would like to discuss tax strategy regarding these changes for your situation.