Iowa's income tax rate is now among nation's lowest
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Iowa's income tax rate is now among the lowest in the nation, according to a new analysis by the Tax Foundation, a nonpartisan think tank.
Why it matters: Lower income tax rates mean more take-home pay for Iowans but less money for state services and programs.
Driving the news: Iowa's state tax returns are due at the end of this month.
- Tax Day, when federal income taxes are due, is April 15.
State of play: Iowa's individual income tax rate dropped to 3.8% this year, down from a top rate of 5.7% in 2024 and 8.53% in 2019.
- Iowa now has the seventh-lowest rate of 41 states and Washington, D.C., with individual income taxes, down from among the 10 highest rates in 2019.
Stunning stat: Iowa is expected to generate $600 million less in tax revenue this fiscal year than the previous year, according to the Iowa Capital Dispatch.
Zoom in: The state's income tax has been cut in stages, shifting from a tiered system to a single rate.
- Lawmakers say the reductions are part of a long-term plan to simplify the tax code and make Iowa more economically competitive.
Zoom out: California (13.3%), Hawaii (11%) and New York (10.9%) had the highest rates among states with an income tax, while Arizona and North Dakota (both 2.5%) had the lowest.
Caveat: Local taxes, some state-specific taxes in a handful of states, and a capital gains surtax on high earners in Minnesota are not included.
What's next: Some GOP lawmakers say they aim to gradually eliminate Iowa's income tax, joining nine states that do not have one.