By Steve Dinnen
The big news on the tax front this year has centered on fraud (again?) involving billions of dollars of federal tax credits tied to the pandemic.
Last month, the Internal Revenue Service halted processing any more Employee Retention Credit claims. Here’s their headline: “To protect taxpayers from scams, IRS orders immediate stop to new Employee Retention Credit processing amid surge of questionable claims; concerns from tax pros.”
Tax pros such as Joe Kristan, CPA and partner at the Des Moines office of the accounting firm Eide Bailly. He said all too many businesses that didn’t qualify for the credit have gone ahead and requested one anyway. They’ve been abetted, perhaps urged along, by an industry that has sprung up overnight to guide companies through the application process. (An honest player in this ERC processing pop-up industry, Innovation Refunds, has laid off 40% of the staff at its headquarters in West Des Moines and has quit taking new applications, according to a story in the Wall Street Journal.)
In less troublesome tax news, a new law allows Iowa entities organized as partnerships or S corporations to work around the cap on itemized SALT deductions (state and local taxes). They can now opt to directly pay taxes that are treated as business expenses of the entity rather than as itemized deductions of the business owner. The owner receives a credit against personal taxes to avoid the income being taxed twice. Congress had gutted SALT deductions with its 2017 tax bill.
Kristan said that’s good news for S corporations but wage income earners won’t see any benefit. Iowa enacted it retroactive to 2022.
Businesses should also note that Iowa taxes on corporations will drop to a top rate of 8.46% for 2023, from 9.8%. They’ll decline to 7.1% next year, on their way to a flat rate of 5.5%.
Iowa is cutting individual tax rates, as well. The rates for 2023 top off at 6%.
Of greater note, perhaps, is that most retirement income will no longer be taxed at the state level. This includes income from 401(k), 403(b) and 457 plans, as well as SEPs, SIMPLEs, Keogh plans and ESOPs. So live it up, seniors!
