This week a House subcommittee approved House Study Bill 626. The bill is very similar to the Governor’s tax proposal (HSB 551). The bill includes a proposal I co-sponsored: The elimination of state income tax on retirement earnings. The House Republican version does not include corporate tax cuts and provides that the taxpayer trust fund will be used to partially pay for the tax cuts.
HSB 626 includes the following divisions:
Division I—Sale of Certain Qualified Stock—Net Capital Gain Exclusion
This division provides an employee-owner one lifetime election to exclude from income tax their net capital gains from the sale or exchange of capital stock (ESOPs). This exclusion is phased in over three years starting tax year 2023.
Division II—Retired Farmer Lease Income Exclusion
This division provides that a retired farmer’s income from rental of their property is exempt from tax. The farmer must be 55/farmed for at least 10 years.If the farmer choses this exemption, they are not eligible for the capital gains exclusion provided by Division III. This change begins tax year 2023.
Division III—Retired Farmer Capital Gain Exclusion
This division provides a single lifetime exclusion of capital gain on the sale of a retired farmer’s land or livestock. This change begins in tax year 2023.
Division IV—Individual Income Tax Rates—Tax Years 2023-2025
This division strikes the tax brackets and rates that would go into effect in tax year 2023 and reduces them further in tax years 2023, 2024, and 2025.
Division V—Individual Income Tax—Flat Rate
This division picks up where Division IV left off. It provides for a flat tax of 4.0 percent on all taxable income. This begins in tax year 2026.
Division VI—Retirement Income
Currently, Iowa Code provides for an income tax exclusion for the first $6,000 of retirement income. This division provides that ALL retirement income would be excluded from tax. The change begins in tax year 2023.
Division VII—Taxpayer Relief Fund
For each of the next six fiscal years, this division transfers from the taxpayer relief fund to the general fund of the state the following amounts:
This division provides an employee-owner one lifetime election to exclude from income tax their net capital gains from the sale or exchange of capital stock (ESOPs). This exclusion is phased in over three years starting tax year 2023.
This division provides that a retired farmer’s income from rental of their property is exempt from tax. The farmer must be 55/farmed for at least 10 years.If the farmer choses this exemption, they are not eligible for the capital gains exclusion provided by Division III. This change begins tax year 2023.
This division provides a single lifetime exclusion of capital gain on the sale of a retired farmer’s land or livestock. This change begins in tax year 2023.
This division strikes the tax brackets and rates that would go into effect in tax year 2023 and reduces them further in tax years 2023, 2024, and 2025.
This division picks up where Division IV left off. It provides for a flat tax of 4.0 percent on all taxable income. This begins in tax year 2026.
Currently, Iowa Code provides for an income tax exclusion for the first $6,000 of retirement income. This division provides that ALL retirement income would be excluded from tax. The change begins in tax year 2023.
For each of the next six fiscal years, this division transfers from the taxpayer relief fund to the general fund of the state the following amounts:
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FY 2022-2023, $113 million
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FY 2023-2024, $159.1 million
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FY 2024-2025, $92.3 million
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FY 2025-2026, $259.4 million
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FY 2026-2027, $195.6 million
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FY 2027-2028, $9.6 million
I am confident the bill will pass through the committee and find its way to the House Floor for debate and passage soon.
