Iowans to get state tax break starting in new year
Income tax rate to be reduced
Iowa residents will see their state tax burden shrink a little bit in the new year.
That’s because on Sunday, the state’s income tax reform will go into effect, gradually lowering rates until a 3.9 percent flat tax is achieved in 2026, according to state Sen. Tim Kraayenbrink, R-Fort Dodge.
The highest personal income tax rate was 8.7 percent, but a change approved by the legislature and Gov. Kim Reynolds early this year will ratchet the rate down.
In the new year beginning Sunday, Iowa’s personal income tax rate will range between 4.4 percent and 6 percent, depending on a person’s earnings.
In 2024 and 2025 the highest tax rate will be trimmed until 2026 when the state will have a flat income tax rate of 3.9 percent.
The same law that is cutting the income tax rate also has benefits for retirees.
Effective Sunday, all pension income will be exempt from state income tax.
Also effective Sunday, all withdrawals from qualifying retirement savings plans will be exempt from state income tax.
That same sweeping tax reform additionally has a provision for owners of farm land who rent it for cash payments. Acknowledging that it is a more complex provision than the other tax cuts, Kraayenbrink said it provides an option in which landowners can have that rental income exempt from state taxes.
“That’s more a conversation people need to have with their tax person,” he said.
Another new state law going into effect Sunday is intended to prompt hospitals to provide more beds for psychiatric care, according to state Rep. Ann Meyer, R-Fort Dodge.
She said under the new law, Medicaid will pay hospitals a higher rate for providing intensive psychiatric care. She said the expectation is that hospitals will provide more beds for psychiatric care because they will get higher reimbursements for doing so.
Medicaid is the federal-state health insurance program for the poor and disabled.
“Many patients that need these types of services are on Medicaid,” Meyer said.