State Taxes at a Glance – Iowa
| Type of Tax | 2023 |
|---|
| Individual Rates | 4.00% to 6.00% |
| Corporate / Business Tax Rates | 5.50% or 8.40% |
| Gross Receipts Tax | None |
| Sales Tax | 6.94% (average) |
| Property Taxes | 1.50% as a percentage of primary home |
| Estate or Inheritance Tax | Yes |
State Income Taxes in Iowa
The state of Iowa does have an individual income tax. Starting in 2023, Iowa restructured their tax code to have less tax brackets (they went from 9 to 4). They range from 4% to 6%. The highest bracket of 6% starts for income greater than $75,000 a year. This is a reduction in income tax from 2022, in which the highest bracket was 8.38%.
Iowa Local Income Tax
Local income tax – depending on the county or school district you are zoned for; you may be subject to an additional Local Income tax. For instance, if you live, work, or conduct business in Appanoose County, you are subject to an additional 1.00 local surcharge tax. The average local income tax rate is 0.11% of your adjusted gross income.
State Business Taxes in Iowa
The state of Iowa has a Corporate Tax rate with two (2) tax brackets. They 5.50% up to the first $100K, and 8.40% for anything over that. Corporate Tax is only assessed on C Corporation. Other flow-thru entities, such as S-Corps, LLCs and LLPs are not subject to the Corporate Tax, however they are subject to the owner’s individual income tax rate.
2023 Iowa Tax Updates
In March of 2022, the Governor signed a new bill into law, aiming to make Iowa more competitive across the country. His proposals modified the following
- Flat State Income tax rate of 3.9% by 2026
- Flat Corporate tax rate of 5.5% by 2026
- Repeal state income tax on retirement income
Some of these rates started to kick in 2023 based on Iowa’s budgetary goals.
Sales and Property Taxes in Iowa
Sales Taxes in Iowa – like many states, Iowa has multiple sales tax rates. One at the state level and another at the local level. The state rate is 6.00% the average local rate is 0.94% (total average rate for Iowa Sales Tax is 6.94%).
Property Taxes in Iowa – the average property tax rate for residential property in the state of Iowa is 1.50%, which is a high property tax as a percentage of home value.
Inheritance Taxes in Iowa
Similar to Kentucky and Maryland, Iowa is one of only six (6) states that has an inheritance tax. Depending on the type (or class) of beneficiary you could be assessed inheritance tax. If you are a direct beneficiary (spouse, parents, grandparents, children, grandchildren, etc.) or a charity you will owe no tax. However, the following beneficiaries will owe tax:
- Class A – Spouses, Parents, Grandparents, and Grandchildren – no tax
- Class B – Siblings and some in-laws – 3.2% – 6.4%
- Class C – Uncles, aunts, nephews, cousins – 6.4% – 9.6%
- Class D – Firms, Corporations, For-Profit entities% – 10%
- Class E – Charities – 6%
- Class F – Unknown heirs – 4%
- Class G – Charities not to exceed $500 – no tax
You may learn more about Iowa’s Inheritance tax on their website – Click here.
Iowa DMV Fees
The state of Iowa imposes a fee on vehicle registrations based on the value of the automobile, which means it is deductible on your federal tax return. For more information, here’s a link to the Iowa’s DMV website.
Iowa Domicile
Iowa’s presumption is that it’s your permanent place of abode (domicile) if you’ve lived there for over 183 days during the taxable year.
State Tax on Social Security Benefits
Even though Iowa has an income tax, social security benefits are not subject to state tax in “The Hawkeye State.”
Payroll Taxes in Iowa
Payroll (Unemployment Insurance) taxes are paid by business on the behalf of their employees to fund unemployment insurance to the state. It consists of multiple factors. Below is an outline of the most common ones in Iowa –
- Wage Base – Iowa’s wage base is $36,100 (high wage base)
- New Employers – UI Contribution Tax is 1.00% for all new employers.
- New Employers in Construction – UI Contribution Tax is 7.50% for new employers in construction
- UI Rates – range from 0.00% to 7.50%
Iowa Business Entities – LLCs
Iowa in an inexpensive cost of opening an LLC. Here are some important facts:
- Iowa’s LLC fee is bi-annual, and is $45.
- When youregister with the state, you pay a one time fee of $50
- Secretary of State of Iowa – click here