By Steve Dinnen
Little changed to the Iowa tax rules this year, with the notable exception of the state’s final steps in its march to a lowered flat tax. From now on, you will pay 3.8% tax on your Iowa taxable income. That’s a remarkable decline from the top rate of 8.53% as recently as 2022, when the state had nine separate tax brackets, which have now disappeared.
Iowa even accelerated its move toward the flat tax, as this new rate was originally set to start in 2026.
Another notable change to Iowa taxes has also been set in motion: the elimination of taxes on retirement income. That started in 2023 and cut out taxes altogether on pension payouts, IRA withdrawals and Social Security. Latest figures show that 41 states exclude Social Security payments from taxes, and 15 states do so with pension money. And of course, nine states, including neighboring South Dakota, levy no state income tax at all.
Iowa has shifted from a relatively high income tax level to one of the lowest. But it still has a way to go on property taxes, which are still among the highest rates in the country. The state’s average of 1.49% for owner-occupied housing compares to 0.9% nationally.
