Iowa Bills Would Eliminate Taxes on Retirement Income

Identical bills before both chambers of the Iowa legislature would end state taxation of pensions and other forms of retirement income — but only through 2020.

HF 280 and SF 277 would remove from the Iowa income tax law two provisions that define income as including all forms of retirement income, including that from pensions. The bills would not change treatment of military retirement income, however, since that is already excluded from Iowa state income taxes.

The legislation adds language that provides that specifically says that such forms of income are not taxable; however, it also says that that language will be repealed on Jan. 1, 2021.

A separate provision, which also will be repealed Jan. 1, 2021, would provide a tax break for an individual who is disabled, age 55 or older, or the surviving spouse of an individual (or is a survivor who has an insurable interest in an individual) who would have qualified for the exemption. Such individuals could subtract, to the extent included, the total amount of a governmental or other pension or retirement pay, including:

 

• defined contribution plans;
• defined benefit plans;
• annuities;
• IRAs;
• plans maintained or contributed to by an employer, or maintained or contributed to by a self-employed person as an employer; and
• deferred compensation plans or any earnings attributable to the deferred compensation plans, up to a maximum of $6,000 for a person, other than a husband or wife, who files a separate state income tax return and up to a maximum of $12,000 dollars for a husband and wife who file a joint state income tax return.

However, a surviving spouse who is not disabled or age 55 or older can only exclude the amount of pension or retirement pay received as a result of the death of the other spouse.

A husband and wife filing separate state income tax returns or separately on a combined state return are allowed a combined maximum exclusion under this subsection of up to $12,000, which is to be allocated to the husband or wife in the proportion that each spouse’s respective pension and retirement pay received bears to total combined pension and retirement pay received.

Both bills were introduced by legislators from Scott County. The version before the House of Representatives, HF 280, was introduced by Rep. Linda Miller (R-Bettendorf) on Feb. 17; it is before the House Ways and Means Committee. The Senate version, SF277, was introduced two days later by Sen. Roby Smith (R-Davenport); it is before the Senate Ways and Means Committee.