S.F. 2293 Section 1. Section 422.5, subsection 3, paragraph a, Code 1 2016, is amended to read as follows: 2 a. The tax shall not be imposed on a resident or nonresident 3 whose net income, as defined in section 422.7 , is thirteen 4 thousand five hundred dollars or less in the case of married 5 persons filing jointly or filing separately on a combined 6 return, heads of household, and surviving spouses or nine 7 thousand dollars or less in the case of all other persons; 8 but in the event that the payment of tax under this division 9 would reduce the net income to less than thirteen thousand five 10 hundred dollars or nine thousand dollars as applicable, then 11 the tax shall be reduced to that amount which would result 12 in allowing the taxpayer to retain a net income of thirteen 13 thousand five hundred dollars or nine thousand dollars as 14 applicable. The preceding sentence does not apply to estates 15 or trusts. For the purpose of this subsection , the entire net 16 income, including any part of the net income not allocated 17 to Iowa, shall be taken into account. For purposes of this 18 subsection , net income includes all amounts of pensions or 19 other retirement income, except for military retirement pay 20 excluded under section 422.7, subsection 31A , paragraph “a” , 21 or section 422.7, subsection 31B , paragraph “a” , received from 22 any source which is not taxable under this division as a result 23 of the government pension exclusions in section 422.7 , or any 24 other state law. If the combined net income of a husband and 25 wife exceeds thirteen thousand five hundred dollars, neither 26 of them shall receive the benefit of this subsection , and it 27 is immaterial whether they file a joint return or separate 28 returns. However, if a husband and wife file separate returns 29 and have a combined net income of thirteen thousand five 30 hundred dollars or less, neither spouse shall receive the 31 benefit of this paragraph, if one spouse has a net operating 32 loss and elects to carry back or carry forward the loss as 33 provided in section 422.9, subsection 3 . A person who is 34 claimed as a dependent by another person as defined in section 35 -1- LSB 5751XS (1) 86 mm/sc 1/ 7

S.F. 2293 422.12 shall not receive the benefit of this subsection if 1 the person claiming the dependent has net income exceeding 2 thirteen thousand five hundred dollars or nine thousand dollars 3 as applicable or the person claiming the dependent and the 4 person’s spouse have combined net income exceeding thirteen 5 thousand five hundred dollars or nine thousand dollars as 6 applicable. 7 Sec. 2. Section 422.5, subsection 3, Code 2016, is amended 8 by adding the following new paragraph: 9 NEW PARAGRAPH . c. (1) For purposes of this subsection, 10 net income includes all amounts of pensions or other retirement 11 income, except for military retirement pay excluded under 12 section 422.7, subsection 31A, paragraph “a” , or section 422.7, 13 subsection 31B, paragraph “a” , and except for retirement income 14 excluded under section 422.7, subsection 31C, received from any 15 source which is not taxable under this division as a result 16 of the government pension exclusions in section 422.7, or any 17 other state law. 18 (2) This paragraph “c” is repealed January 1, 2026. 19 Sec. 3. Section 422.5, subsection 3B, paragraph a, Code 20 2016, is amended to read as follows: 21 a. The tax shall not be imposed on a resident or nonresident 22 who is at least sixty-five years old on December 31 of 23 the tax year and whose net income, as defined in section 24 422.7 , is thirty-two thousand dollars or less in the case 25 of married persons filing jointly or filing separately on a 26 combined return, heads of household, and surviving spouses or 27 twenty-four thousand dollars or less in the case of all other 28 persons; but in the event that the payment of tax under this 29 division would reduce the net income to less than thirty-two 30 thousand dollars or twenty-four thousand dollars as applicable, 31 then the tax shall be reduced to that amount which would result 32 in allowing the taxpayer to retain a net income of thirty-two 33 thousand dollars or twenty-four thousand dollars as applicable. 34 The preceding sentence does not apply to estates or trusts. 35 -2- LSB 5751XS (1) 86 mm/sc 2/ 7

S.F. 2293 For the purpose of this subsection , the entire net income, 1 including any part of the net income not allocated to Iowa, 2 shall be taken into account. For purposes of this subsection , 3 net income includes all amounts of pensions or other retirement 4 income, except for military retirement pay excluded under 5 section 422.7, subsection 31A , paragraph “a” , or section 422.7, 6 subsection 31B , paragraph “a” , received from any source which is 7 not taxable under this division as a result of the government 8 pension exclusions in section 422.7 , or any other state law. 9 If the combined net income of a husband and wife exceeds 10 thirty-two thousand dollars, neither of them shall receive the 11 benefit of this subsection , and it is immaterial whether they 12 file a joint return or separate returns. However, if a husband 13 and wife file separate returns and have a combined net income 14 of thirty-two thousand dollars or less, neither spouse shall 15 receive the benefit of this paragraph, if one spouse has a net 16 operating loss and elects to carry back or carry forward the 17 loss as provided in section 422.9, subsection 3 . A person 18 who is claimed as a dependent by another person as defined in 19 section 422.12 shall not receive the benefit of this subsection 20 if the person claiming the dependent has net income exceeding 21 thirty-two thousand dollars or twenty-four thousand dollars 22 as applicable or the person claiming the dependent and the 23 person’s spouse have combined net income exceeding thirty-two 24 thousand dollars or twenty-four thousand dollars as applicable. 25 Sec. 4. Section 422.5, subsection 3B, Code 2016, is amended 26 by adding the following new paragraph: 27 NEW PARAGRAPH . d. (1) For purposes of this subsection, 28 net income includes all amounts of pensions or other retirement 29 income, except for military retirement pay excluded under 30 section 422.7, subsection 31A, paragraph “a” , or section 422.7, 31 subsection 31B, paragraph “a” , and except for retirement income 32 excluded under section 422.7, subsection 31C, received from any 33 source which is not taxable under this division as a result 34 of the government pension exclusions in section 422.7, or any 35 -3- LSB 5751XS (1) 86 mm/sc 3/ 7

S.F. 2293 other state law. 1 (2) This paragraph “d” is repealed January 1, 2026. 2 Sec. 5. Section 422.7, subsection 31, Code 2016, is amended 3 to read as follows: 4 31. a. For a person who is disabled, or is fifty-five 5 years of age or older, or is the surviving spouse of an 6 individual or a survivor having an insurable interest in an 7 individual who would have qualified for the exemption under 8 this subsection for the tax year, subtract, to the extent 9 included, the total amount of a governmental or other pension 10 or retirement pay, including, but not limited to, defined 11 benefit or defined contribution plans, annuities, individual 12 retirement accounts, plans maintained or contributed to by an 13 employer, or maintained or contributed to by a self-employed 14 person as an employer, and deferred compensation plans or any 15 earnings attributable to the deferred compensation plans, up 16 to a maximum of six thousand dollars for a person, other than a 17 husband or wife, who files a separate state income tax return 18 and up to a maximum of twelve thousand dollars for a husband 19 and wife who file a joint state income tax return. However, a 20 surviving spouse who is not disabled or fifty-five years of age 21 or older can only exclude the amount of pension or retirement 22 pay received as a result of the death of the other spouse. A 23 husband and wife filing separate state income tax returns or 24 separately on a combined state return are allowed a combined 25 maximum exclusion under this subsection of up to twelve 26 thousand dollars. The twelve thousand dollar exclusion shall 27 be allocated to the husband or wife in the proportion that each 28 spouse’s respective pension and retirement pay received bears 29 to total combined pension and retirement pay received. 30 b. This subsection is repealed January 1, 2026. 31 Sec. 6. Section 422.7, subsection 31A, Code 2016, is amended 32 by adding the following new paragraph: 33 NEW PARAGRAPH . c. This subsection is repealed January 1, 34 2026. 35 -4- LSB 5751XS (1) 86 mm/sc 4/ 7

S.F. 2293 Sec. 7. Section 422.7, subsection 31B, Code 2016, is amended 1 by adding the following new paragraph: 2 NEW PARAGRAPH . c. This subsection is repealed January 1, 3 2026. 4 Sec. 8. Section 422.7, Code 2016, is amended by adding the 5 following new subsection: 6 NEW SUBSECTION . 31C. a. Subtract, to the extent included, 7 the following percentage of the retirement income received by a 8 taxpayer remaining after the subtractions in subsections 31, 9 31A, and 31B: 10 (1) For tax years beginning in the 2017 calendar year, ten 11 percent. 12 (2) For tax years beginning in the 2018 calendar year, 13 twenty percent. 14 (3) For tax years beginning in the 2019 calendar year, 15 thirty percent. 16 (4) For tax years beginning in the 2020 calendar year, forty 17 percent. 18 (5) For tax years beginning in the 2021 calendar year, fifty 19 percent. 20 (6) For tax years beginning in the 2022 calendar year, sixty 21 percent. 22 (7) For tax years beginning in the 2023 calendar year, 23 seventy percent. 24 (8) For tax years beginning in the 2024 calendar year, 25 eighty percent. 26 (9) For tax years beginning in the 2025 calendar year, 27 ninety percent. 28 b. For tax years beginning on or after January 1, 2026, 29 subtract, to the extent included, retirement income received 30 by a taxpayer. 31 c. For purposes of this subsection, “retirement income” 32 means a governmental or other pension or retirement pay, 33 including but not limited to defined benefit or defined 34 contribution plans, annuities, individual retirement accounts, 35 -5- LSB 5751XS (1) 86 mm/sc 5/ 7

S.F. 2293 plans maintained or contributed to by an employer, or 1 maintained or contributed to by a self-employed person as an 2 employer, and deferred compensation plans or any earnings 3 attributable to the deferred compensation plans. 4 Sec. 9. APPLICABILITY. This Act applies to tax years 5 beginning on or after January 1, 2017. 6 EXPLANATION 7 The inclusion of this explanation does not constitute agreement with 8 the explanation’s substance by the members of the general assembly. 9 This bill relates to the exclusion of retirement income from 10 the computation of net income for purposes of the individual 11 income tax. 12 Under current law, a taxpayer may exclude all retirement 13 pay, including certain survivor benefits, received from the 14 federal government for military service performed in the armed 15 forces, the armed forces military reserve, or national guard. 16 In addition, a taxpayer who is disabled, who is at least 55 17 years of age, or who is the surviving spouse or other specified 18 survivor of that qualifying taxpayer, may exclude a maximum 19 of $6,000 of other retirement income ($12,000 for married 20 couples). 21 The bill phases in over a 10-year period the complete 22 exclusion from the individual income tax of a taxpayer’s 23 retirement income remaining after the two exclusions referenced 24 above. The percentage of this retirement income that is 25 excluded for tax years beginning in 2017, 2018, 2019, 2020, 26 2021, 2022, 2023, 2024, and 2025 is 10 percent, 20 percent, 30 27 percent, 40 percent, 50 percent, 60 percent, 70 percent, 80 28 percent, and 90 percent, respectively. For tax years beginning 29 in 2026 or later, 100 percent of a taxpayer’s retirement income 30 will be excluded from the individual income tax. 31 The bill also excludes this retirement income from the 32 calculation of net income for purposes of determining whether 33 or not a taxpayer’s net income exceeds the amount at which the 34 individual income tax will not be imposed pursuant to Code 35 -6- LSB 5751XS (1) 86 mm/sc 6/ 7

S.F. 2293 section 422.5(3) or Code section 422.5(3B), and for which an 1 individual income tax return is not required to be filed, and 2 for purposes of calculating the alternate tax in Code section 3 422.5, and further provides that any retirement income excluded 4 from the individual income tax will not be added back to these 5 calculations for tax years beginning in 2026 or later. 6 The bill defines “retirement income” for purposes of the 7 exclusion. 8 The bill applies to tax years beginning on or after January 9 1, 2017. 10 -7- LSB 5751XS (1) 86 mm/sc 7/ 7