House File 2317 S-5022 Amend House File 2317, as passed by the House, as follows: 1 1. By striking everything after the enacting clause and 2 inserting: 3 < DIVISION I 4 SALE OF CERTAIN QUALIFIED STOCK —— NET CAPITAL GAIN EXCLUSION 5 Section 1. Section 422.7, Code 2022, is amended by adding 6 the following new subsection: 7 NEW SUBSECTION . 63. a. Subtract the following percentage 8 of the net capital gain from the sale or exchange of capital 9 stock of a qualified corporation for which an election is made 10 by an employee-owner: 11 (1) For the tax year beginning in the 2023 calendar year, 12 thirty-three percent. 13 (2) For the tax year beginning in the 2024 calendar year, 14 sixty-six percent. 15 (3) For tax years beginning on or after January 1, 2025, one 16 hundred percent. 17 b. (1) An employee-owner is entitled to make one 18 irrevocable lifetime election to exclude the net capital 19 gain from the sale or exchange of capital stock of one 20 qualified corporation which capital stock was acquired by the 21 employee-owner while employed and on account of employment by 22 such qualified corporation. 23 (2) The election shall apply to all subsequent sales 24 or exchanges of qualifying capital stock of the elected 25 corporation within fifteen years of the date of the election, 26 provided that the subsequent sales or exchanges were of capital 27 stock in the same qualified corporation and were acquired by 28 the employee-owner while employed and on account of employment 29 by such qualified corporation. 30 (3) The election shall apply to qualifying capital stock 31 that has been transferred by inter vivos gift from the 32 employee-owner to the employee-owner’s spouse or to a trust 33 for the benefit of the employee-owner’s spouse following the 34 transfer. This subparagraph (3) shall apply to a spouse 35 -1- HF 2317.3417 (2) 89 jm/jh 1/ 39 #1.

only if the spouse was married to the employee-owner on the 1 date of the sale or exchange or the date of death of the 2 employee-owner. 3 (4) If the employee-owner dies after having sold or 4 exchanged qualifying capital stock without having made an 5 election under this subsection, the surviving spouse or, if 6 there is no surviving spouse, the personal representative of 7 the employee-owner’s estate, may make the election that would 8 have qualified under this subsection. 9 (5) The election shall be made in the manner and form 10 prescribed by the department and shall be included with the 11 taxpayer’s state income tax return for the taxable year in 12 which the election is made. 13 c. For purposes of this subsection: 14 (1) “Capital stock” means common or preferred stock, either 15 voting or nonvoting. “Capital stock” does not include stock 16 rights, stock warrants, stock options, or debt securities. 17 (2) “Employee-owner” means an individual who owns capital 18 stock in a qualified corporation for at least ten years, which 19 capital stock was acquired by the individual while employed and 20 on account of employment by such corporation for at least ten 21 cumulative years. 22 (3) “Personal representative” means the same as defined in 23 section 633.3, or if there is no such personal representative 24 appointed, then the person legally authorized to perform 25 substantially the same functions. 26 (4) (a) “Qualified corporation” means, with respect to an 27 employee-owner, a corporation which, at the time of the first 28 sale or exchange for which an election is made by the employee- 29 owner under this subsection, meets all of the following 30 conditions: 31 (i) The corporation employed individuals in this state for 32 at least ten years. 33 (ii) The corporation has had at least five shareholders for 34 the ten years prior to the first sale or exchange under this 35 -2- HF 2317.3417 (2) 89 jm/jh 2/ 39

subsection. 1 (iii) The corporation has had at least two shareholders or 2 groups of shareholders who are not related for the ten years 3 prior to the first sale or exchange under this subsection. 4 Two persons are considered related when, under section 318 of 5 the Internal Revenue Code, one is a person who owns, directly 6 or indirectly, capital stock that if directly owned would be 7 attributed to the other person, or is the brother, sister, 8 aunt, uncle, cousin, niece, or nephew of the other person who 9 owns capital stock either directly or indirectly. 10 (b) “Qualified corporation” includes any member of an Iowa 11 affiliated group if the Iowa affiliated group includes a member 12 that has employed individuals in this state for at least ten 13 years. For purposes of this subparagraph division, “Iowa 14 affiliated group” means an affiliated group that has made a 15 valid election to file an Iowa consolidated income tax return 16 under section 422.37 in the year in which the deduction under 17 this subsection is claimed. “Member” includes any entity 18 included in the consolidated return under section 422.37, 19 subsection 2, for the tax year in which the deduction is 20 claimed. 21 (c) “Qualified corporation” also includes any corporation 22 that was a party to a reorganization that was entirely or 23 substantially tax free if such reorganization occurred during 24 or after the employment of the employee-owner. 25 Sec. 2. EFFECTIVE DATE. This division of this Act takes 26 effect January 1, 2023. 27 Sec. 3. APPLICABILITY. This division of this Act applies to 28 tax years beginning on or after January 1, 2023. 29 DIVISION II 30 RETIRED FARMER LEASE INCOME EXCLUSION 31 Sec. 4. Section 422.7, Code 2022, is amended by adding the 32 following new subsection: 33 NEW SUBSECTION . 21A. a. Subtract, to the extent included, 34 net income received by an eligible individual pursuant to a 35 -3- HF 2317.3417 (2) 89 jm/jh 3/ 39

farm tenancy agreement covering real property held by the 1 eligible individual for ten or more years, if the eligible 2 individual materially participated in a farming business for 3 ten or more years. 4 b. An individual who elects to exclude income received 5 pursuant to a farm tenancy agreement under this subsection 6 shall not claim any of the following in the tax year in which 7 the election is made or in any succeeding year: 8 (1) The capital gain exclusion under subsection 21. 9 (2) The beginning farmer tax credit under section 422.11E. 10 c. Married individuals who file separate state income tax 11 returns shall allocate their combined annual exclusion limit 12 to each spouse in the proportion that each spouse’s respective 13 net income from a farm tenancy agreement bears to the total net 14 income from a farm tenancy agreement. 15 d. The department shall establish criteria, by rule, 16 relating to whether and how a surviving spouse may claim the 17 income exclusion for which a deceased eligible individual would 18 have been eligible under this subsection. 19 e. Net income from a farm tenancy agreement earned, 20 received, or reported by an entity taxed as a partnership 21 for federal tax purposes, an S corporation, or a trust or 22 estate is not eligible for the election and deduction in this 23 subsection, even if such net income ultimately passes through 24 to an eligible individual. 25 f. For purposes of this subsection: 26 (1) “Eligible individual” means an individual who is 27 disabled or who is fifty-five years of age or older at the time 28 the election is made, who no longer materially participates in 29 a farming business at the time the election is made, and who, 30 as an owner-lessor, is party to a farm tenancy agreement. 31 (2) “Farm tenancy agreement” means a written agreement 32 outlining the rights and obligations of an owner-lessor and a 33 tenant-lessee where the tenant-lessee has a farm tenancy as 34 defined in section 562.1A. A “farm tenancy agreement” includes 35 -4- HF 2317.3417 (2) 89 jm/jh 4/ 39

cash leases, crop share leases, or livestock share leases. 1 (3) “Farming business” means the production, care, growing, 2 harvesting, preservation, handling, or storage of crops 3 or forest or fruit trees; the production, care, feeding, 4 management, and housing of livestock; or horticulture, all 5 intended for profit. 6 (4) “Livestock” means the same as defined in section 717.1. 7 (5) “Materially participated” means the same as “material 8 participation” in section 469(h) of the Internal Revenue Code. 9 Sec. 5. EFFECTIVE DATE. This division of this Act takes 10 effect January 1, 2023. 11 Sec. 6. APPLICABILITY. This division of this Act applies to 12 tax years beginning on or after January 1, 2023. 13 DIVISION III 14 RETIRED FARMER CAPITAL GAIN EXCLUSION 15 Sec. 7. Section 422.7, subsection 21, Code 2022, is amended 16 by striking the subsection and inserting in lieu thereof the 17 following: 18 21. a. For purposes of this subsection: 19 (1) “Farming business” means the production, care, growing, 20 harvesting, preservation, handling, or storage of crops 21 or forest or fruit trees; the production, care, feeding, 22 management, and housing of livestock; or horticulture, all for 23 intended profit. 24 (2) “Held” shall be determined with reference to the holding 25 period provisions of section 1223 of the Internal Revenue Code 26 and the federal regulations pursuant thereto. 27 (3) “Livestock” means the same as defined in section 717.1. 28 (4) “Materially participated” means the same as “material 29 participation” in section 469(h) of the Internal Revenue Code. 30 (5) (a) “Real property used in a farming business” means 31 all tracts of land and the improvements and structures located 32 on such tracts which are in good faith used primarily for 33 a farming business. Buildings which are primarily used or 34 intended for human habitation are deemed to be used in a 35 -5- HF 2317.3417 (2) 89 jm/jh 5/ 39

farming business when the building is located on or adjacent 1 to the parcel used in the farming business. Land and the 2 nonresidential improvements and structures located on such land 3 that shall be considered to be used primarily in a farming 4 business include but are not limited to land, improvements 5 or structures used for the storage or maintenance of farm 6 machinery or equipment, for the drying, storage, handling, 7 or preservation of agricultural crops, or for the storage of 8 farm inputs, feed, or manure. Real property used in a farming 9 business shall also include woodland, wasteland, pastureland, 10 and idled land used for the conservation of natural resources 11 including soil and water. 12 (b) Real property classified as agricultural property for 13 Iowa property tax purposes, except real property described 14 in section 441.21, subsection 12, paragraph “a” or “b” , 15 shall be presumed to be real property used in a farming 16 business. This presumption is rebuttable by the department by 17 a preponderance of evidence that the real property did not meet 18 the requirements of subparagraph division (a). 19 (6) “Relative” means a person that satisfies one or more of 20 the following conditions: 21 (a) The individual is related to the taxpayer by 22 consanguinity or affinity within the second degree as 23 determined by common law. 24 (b) The individual is a lineal descendent of the taxpayer. 25 For purposes of this subparagraph division, “lineal descendent” 26 means children of the taxpayer, including legally adopted 27 children and biological children, stepchildren, grandchildren, 28 great-grandchildren, and any other lineal descendent of the 29 taxpayer. 30 (c) An entity in which an individual who satisfies the 31 conditions of either subparagraph division (a) or (b) has a 32 legal or equitable interest as an owner, member, partner, or 33 beneficiary. 34 (7) “Retired farmer” means an individual who is disabled 35 -6- HF 2317.3417 (2) 89 jm/jh 6/ 39

or who is fifty-five years of age or older and who no longer 1 materially participates in a farming business when an exclusion 2 and deduction is claimed under this subsection. 3 b. Subtract the net capital gain from the sale of real 4 property used in a farming business if one of the following 5 conditions are satisfied: 6 (1) The taxpayer has materially participated in a farming 7 business for a minimum of ten years and has held the real 8 property used in a farming business for a minimum of ten years. 9 If the taxpayer is a retired farmer, the taxpayer is considered 10 to meet the material participation requirement if the taxpayer 11 materially participated in a farming business for ten years or 12 more in the aggregate, prior to making an election under this 13 subsection. 14 (2) The taxpayer has held the real property used in a 15 farming business which is sold to a relative of the taxpayer. 16 c. For a taxpayer who is a retired farmer, subtract the 17 net capital gain from the sale of cattle or horses held by 18 the taxpayer for breeding, draft, dairy, or sporting purposes 19 for a period of twenty-four months or more from the date of 20 acquisition; but only if the taxpayer materially participated 21 in the farming business for five of the eight years preceding 22 the farmer’s retirement or disability and who has sold all or 23 substantially all of the taxpayer’s interest in the farming 24 business by the time the election under this paragraph is made. 25 d. For a taxpayer who is a retired farmer, subtract the net 26 capital gain from the sale of breeding livestock, other than 27 cattle and horses, if the livestock is held by the taxpayer for 28 a period of twelve months or more from the date of acquisition; 29 but only if the taxpayer materially participated in the farming 30 business for five of the eight years preceding the farmer’s 31 retirement or disability and who has sold all or substantially 32 all of the taxpayer’s interest in the farming business by the 33 time the election under this paragraph is made. 34 e. A taxpayer who is a retired farmer may make, subject to 35 -7- HF 2317.3417 (2) 89 jm/jh 7/ 39

the limitations described in paragraphs “f” and “g” , a single, 1 lifetime election to exclude all qualifying capital gains under 2 paragraphs “b” , “c” , and “d” . 3 f. A taxpayer who is a retired farmer who elects to exclude 4 capital gains under paragraph “b” , “c” , or “d” shall not claim 5 the beginning farmer tax credit under section 422.11E or the 6 exclusion for net income received pursuant to a farm tenancy 7 agreement in subsection 21A, in the tax year in which this 8 election is made or in any subsequent year. 9 g. A taxpayer who is a retired farmer who claims the 10 beginning farmer tax credit under section 422.11E shall not, 11 in the same year, make an election under this subsection. A 12 taxpayer who is a retired farmer and who elects to exclude 13 the net income received from a farm tenancy agreement under 14 subsection 21A, shall not, in the same tax year or in any 15 subsequent tax year, make the election under this subsection. 16 h. Married individuals who file separate state income tax 17 returns shall allocate their combined annual net capital gain 18 exclusion under paragraphs “b” , “c” , and “d” to each spouse in 19 the proportion that each spouse’s respective net capital gain 20 bears to the total net capital gain. 21 i. The department shall establish criteria, by rule, 22 relating to whether and how a surviving spouse may claim the 23 income exclusion for which a deceased retired farmer would have 24 been eligible under this subsection. 25 Sec. 8. REPEAL. 2018 Iowa Acts, chapter 1161, section 113, 26 is repealed. 27 Sec. 9. REPEAL. 2019 Iowa Acts, chapter 162, section 1, is 28 repealed. 29 Sec. 10. EFFECTIVE DATE. This division of this Act takes 30 effect January 1, 2023. 31 Sec. 11. APPLICABILITY. 32 1. This division of this Act applies to tax years beginning 33 on or after January 1, 2023. 34 2. This division of this Act applies to sales consummated on 35 -8- HF 2317.3417 (2) 89 jm/jh 8/ 39

or after the effective date of this division of this Act, and 1 sales consummated prior to the effective date of this division 2 of this Act shall be governed by the law as it existed prior to 3 the effective date of this division of this Act. 4 DIVISION IV 5 INDIVIDUAL INCOME TAX RATES —— TAX YEARS 2023-2025 6 Sec. 12. Section 422.5, subsection 3, paragraph b, Code 7 2022, is amended to read as follows: 8 b. (1) In lieu of the computation in subsection 1 or 9 2 , or in paragraph “a” of this subsection , if the married 10 persons’, filing jointly or filing separately on a combined 11 return , head of household’s, or surviving spouse’s net income 12 exceeds thirteen thousand five hundred dollars, the regular 13 tax imposed under this subchapter shall be the lesser of the 14 maximum alternate state individual income tax rate specified in 15 subparagraph (2) times the portion of the net income in excess 16 of thirteen thousand five hundred dollars or the regular tax 17 liability computed without regard to this sentence. Taxpayers 18 electing to file separately shall compute the alternate tax 19 described in this paragraph using the total net income of the 20 husband and wife spouses . The alternate tax described in this 21 paragraph does not apply if one spouse elects to carry back or 22 carry forward the loss as provided in section 422.9, subsection 23 3 . 24 (2) (a) (i) (A) For the tax year beginning on or after 25 January 1, 2023, but before January 1, 2024, the alternate tax 26 rate is 6.00 percent. 27 (B) For the tax year beginning on or after January 1, 2024, 28 but before January 1, 2025, the alternate tax rate is 5.70 29 percent. 30 (C) For the tax year beginning on or after January 1, 2025, 31 but before January 1, 2026, the alternate tax rate is 5.20 32 percent. 33 (ii) This subparagraph division (a) is repealed January 1, 34 2026. 35 -9- HF 2317.3417 (2) 89 jm/jh 9/ 39

(b) For tax years beginning on or after January 1, 2026, the 1 alternate tax rate is 4.40 percent. 2 Sec. 13. Section 422.5, subsection 3B, paragraph b, Code 3 2022, is amended to read as follows: 4 b. (1) In lieu of the computation in subsection 1, 2, or 3 , 5 if the married persons’, filing jointly or filing separately on 6 a combined return , head of household’s, or surviving spouse’s 7 net income exceeds thirty-two thousand dollars, the regular 8 tax imposed under this subchapter shall be the lesser of the 9 maximum alternate state individual income tax rate specified in 10 subparagraph (2) times the portion of the net income in excess 11 of thirty-two thousand dollars or the regular tax liability 12 computed without regard to this sentence. Taxpayers electing 13 to file separately shall compute the alternate tax described in 14 this paragraph using the total net income of the husband and 15 wife spouses . The alternate tax described in this paragraph 16 does not apply if one spouse elects to carry back or carry 17 forward the loss as provided in section 422.9, subsection 3 . 18 (2) (a) (i) (A) For the tax year beginning on or after 19 January 1, 2023, but before January 1, 2024, the alternate tax 20 rate is 6.00 percent. 21 (B) For the tax year beginning on or after January 1, 2024, 22 but before January 1, 2025, the alternate tax rate is 5.70 23 percent. 24 (C) For the tax year beginning on or after January 1, 2025, 25 but before January 1, 2026, the alternate tax rate is 5.20 26 percent. 27 (ii) This subparagraph division (a) is repealed January 1, 28 2026. 29 (b) For tax years beginning on or after January 1, 2026, the 30 alternate tax rate is 4.40 percent. 31 Sec. 14. Section 422.5, subsection 6, Code 2022, is amended 32 to read as follows: 33 6. a. Upon determination of the latest cumulative inflation 34 factor, the director shall multiply each dollar amount set 35 -10- HF 2317.3417 (2) 89 jm/jh 10/ 39

forth in section 422.5A by this cumulative inflation factor, 1 shall round off the resulting product to the nearest one 2 dollar, and shall incorporate the result into the income tax 3 forms and instructions for each tax year. 4 b. This subsection is repealed on January 1, 2026. 5 Sec. 15. Section 422.5A, Code 2022, is amended by striking 6 the section and inserting in lieu thereof the following: 7 422.5A Tax rates. 8 1. a. The tax imposed in section 422.5 shall be calculated 9 using the following rates in the following tax years in the 10 case of married persons filing jointly: 11 (1) For the tax year beginning on or after January 1, 2023, 12 but before January 1, 2024: 13 (a) On taxable income from 0 through $12,000, the rate of 14 4.40 percent. 15 (b) On taxable income exceeding $12,000 but not exceeding 16 $60,000, the rate of 4.82 percent. 17 (c) On taxable income exceeding $60,000 but not exceeding 18 $150,000, the rate of 5.70 percent. 19 (d) On taxable income exceeding $150,000, the rate of 6.00 20 percent. 21 (2) For the tax year beginning on or after January 1, 2024, 22 but before January 1, 2025: 23 (a) On taxable income from 0 through $12,000, the rate of 24 4.40 percent. 25 (b) On taxable income exceeding $12,000 but not exceeding 26 $60,000, the rate of 4.82 percent. 27 (c) On taxable income exceeding $60,000, the rate of 5.70 28 percent. 29 (3) For the tax year beginning on or after January 1, 2025, 30 but before January 1, 2026: 31 (a) On taxable income from 0 through $12,000, the rate of 32 4.40 percent. 33 (b) On taxable income exceeding $12,000, the rate of 4.82 34 percent. 35 -11- HF 2317.3417 (2) 89 jm/jh 11/ 39

b. The tax imposed in section 422.5 shall be calculated 1 using the following rates in the following tax years in the 2 case of any other taxpayer other than married persons filing 3 jointly: 4 (1) For the tax year beginning on or after January 1, 2023, 5 but before January 1, 2024: 6 (a) On taxable income from 0 through $6,000, the rate of 7 4.40 percent. 8 (b) On taxable income exceeding $6,000 but not exceeding 9 $30,000, the rate of 4.82 percent. 10 (c) On taxable income exceeding $30,000 but not exceeding 11 $75,000, the rate of 5.70 percent. 12 (d) On taxable income exceeding $75,000, the rate of 6.00 13 percent. 14 (2) For the tax year beginning on or after January 1, 2024, 15 but before January 1, 2025: 16 (a) On taxable income from 0 through $6,000, the rate of 17 4.40 percent. 18 (b) On taxable income exceeding $6,000 but not exceeding 19 $30,000, the rate of 4.82 percent. 20 (c) On taxable income exceeding $30,000, the rate of 5.70 21 percent. 22 (3) For the tax year beginning on or after January 1, 2025, 23 but before January 1, 2026: 24 (a) On taxable income from 0 through $6,000, the rate of 25 4.40 percent. 26 (b) On taxable income exceeding $6,000, the rate of 4.82 27 percent. 28 2. This section is repealed January 1, 2026. 29 Sec. 16. REPEAL. 2018 Iowa Acts, chapter 1161, section 107, 30 is repealed. 31 Sec. 17. EFFECTIVE DATE. This division of this Act takes 32 effect January 1, 2023. 33 Sec. 18. APPLICABILITY. This division of this Act applies 34 to tax years beginning on or after January 1, 2023. 35 -12- HF 2317.3417 (2) 89 jm/jh 12/ 39

DIVISION V 1 INDIVIDUAL INCOME TAX —— FLAT RATE 2 Sec. 19. Section 421.27, subsection 9, paragraph a, 3 subparagraph (3), Code 2022, is amended to read as follows: 4 (3) In the case of all other entities, including 5 corporations described in section 422.36, subsection 5 , and all 6 other entities required to file an information return under 7 section 422.15, subsection 2 , the entity’s Iowa net income 8 after the application of the Iowa business activity ratio, 9 if applicable, multiplied by the top income tax rate imposed 10 under section 422.5A 422.5 for the tax year, less any Iowa tax 11 credits available to the entity. 12 Sec. 20. Section 422.5, subsection 1, paragraph a, Code 13 2022, is amended to read as follows: 14 a. A tax is imposed upon every resident and nonresident 15 of the state which tax shall be levied, collected, and paid 16 annually upon and with respect to the entire taxable income 17 as defined in this subchapter at rates as provided in section 18 422.5A a rate of three and nine-tenths percent . 19 Sec. 21. Section 422.16B, subsection 2, paragraph a, Code 20 2022, is amended to read as follows: 21 a. (1) A pass-through entity shall file a composite return 22 on behalf of all nonresident members and shall report and pay 23 the income or franchise tax imposed under this chapter at the 24 maximum state income or franchise tax rate applicable to the 25 member under section 422.5A 422.5 , 422.33 , or 422.63 on the 26 nonresident members’ distributive shares of the income from the 27 pass-through entity. 28 (2) The tax rate applicable to a tiered pass-through entity 29 shall be the maximum state income tax rate under section 422.5A 30 422.5 . 31 Sec. 22. Section 422.25A, subsection 5, paragraph c, 32 subparagraphs (3), (4), and (5), Code 2022, are amended to read 33 as follows: 34 (3) Determine the total distributive share of all final 35 -13- HF 2317.3417 (2) 89 jm/jh 13/ 39

federal partnership adjustments and positive reallocation 1 adjustments as modified by this title that are reported to 2 nonresident individual partners and nonresident fiduciary 3 partners and allocate and apportion such adjustments as 4 provided in section 422.33 at the partnership or tiered 5 partner level, and multiply the resulting amount by the maximum 6 individual income tax rate pursuant to section 422.5A 422.5 for 7 the reviewed year. 8 (4) For the total distributive share of all final federal 9 partnership adjustments and positive reallocation adjustments 10 as modified by this title that are reported to tiered partners: 11 (a) Determine the amount of such adjustments which are of a 12 type that would be subject to sourcing to Iowa under section 13 422.8, subsection 2 , paragraph “a” , as a nonresident, and then 14 determine the portion of this amount that would be sourced to 15 Iowa under those provisions as if the tiered partner were a 16 nonresident. 17 (b) Determine the amount of such adjustments which are of 18 a type that would not be subject to sourcing to Iowa under 19 section 422.8, subsection 2 , paragraph “a” , as a nonresident. 20 (c) Determine the portion of the amount in subparagraph 21 division (b) that can be established, as prescribed by the 22 department by rule, to be properly allocable to indirect 23 partners that are nonresident partners or other partners not 24 subject to tax on the adjustments. 25 (d) Multiply the total of the amounts determined in 26 subparagraph divisions (a) and (b), reduced by any amount 27 determined in subparagraph division (c), by the highest 28 individual income tax rate pursuant to section 422.5A 422.5 for 29 the reviewed year. 30 (5) For the total distributive share of all final federal 31 partnership adjustments and positive reallocation adjustments 32 as modified by this title that are reported to resident 33 individual partners and resident fiduciary partners, multiply 34 that amount by the highest individual income tax rate pursuant 35 -14- HF 2317.3417 (2) 89 jm/jh 14/ 39

to section 422.5A 422.5 for the reviewed year. 1 Sec. 23. EFFECTIVE DATE. This division of this Act takes 2 effect January 1, 2026. 3 Sec. 24. APPLICABILITY. This division of this Act applies 4 to tax years beginning on or after January 1, 2026. 5 DIVISION VI 6 RETIREMENT INCOME 7 Sec. 25. Section 422.5, subsection 3, paragraph a, Code 8 2022, is amended to read as follows: 9 a. The tax shall not be imposed on a resident or nonresident 10 whose net income, as defined in section 422.7 , is thirteen 11 thousand five hundred dollars or less in the case of married 12 persons filing jointly or filing separately on a combined 13 return, heads of household, and surviving spouses or nine 14 thousand dollars or less in the case of all other persons; but 15 in the event that the payment of tax under this subchapter 16 would reduce the net income to less than thirteen thousand five 17 hundred dollars or nine thousand dollars as applicable, then 18 the tax shall be reduced to that amount which would result 19 in allowing the taxpayer to retain a net income of thirteen 20 thousand five hundred dollars or nine thousand dollars as 21 applicable. The preceding sentence does not apply to estates 22 or trusts. For the purpose of this subsection , the entire net 23 income, including any part of the net income not allocated 24 to Iowa, shall be taken into account. For purposes of this 25 subsection , net income includes all amounts of pensions or 26 other retirement income, except for military retirement pay 27 excluded under section 422.7, subsection 31A , paragraph “a” , or 28 section 422.7, subsection 31B , paragraph “a” , received from any 29 source which is not taxable under this subchapter as a result 30 of the government pension exclusions in section 422.7 , or any 31 other state law. If the combined net income of a husband and 32 wife exceeds thirteen thousand five hundred dollars, neither 33 of them shall receive the benefit of this subsection , and it 34 is immaterial whether they file a joint return or separate 35 -15- HF 2317.3417 (2) 89 jm/jh 15/ 39

returns. However, if a husband and wife file separate returns 1 and have a combined net income of thirteen thousand five 2 hundred dollars or less, neither spouse shall receive the 3 benefit of this paragraph, if one spouse has a net operating 4 loss and elects to carry back or carry forward the loss as 5 provided in section 422.9, subsection 3 . A person who is 6 claimed as a dependent by another person as defined in section 7 422.12 shall not receive the benefit of this subsection if 8 the person claiming the dependent has net income exceeding 9 thirteen thousand five hundred dollars or nine thousand dollars 10 as applicable or the person claiming the dependent and the 11 person’s spouse have combined net income exceeding thirteen 12 thousand five hundred dollars or nine thousand dollars as 13 applicable. 14 Sec. 26. Section 422.5, subsection 3B, paragraph a, Code 15 2022, is amended to read as follows: 16 a. The tax shall not be imposed on a resident or nonresident 17 who is at least sixty-five years old on December 31 of 18 the tax year and whose net income, as defined in section 19 422.7 , is thirty-two thousand dollars or less in the case 20 of married persons filing jointly or filing separately on a 21 combined return, heads of household, and surviving spouses or 22 twenty-four thousand dollars or less in the case of all other 23 persons; but in the event that the payment of tax under this 24 subchapter would reduce the net income to less than thirty-two 25 thousand dollars or twenty-four thousand dollars as applicable, 26 then the tax shall be reduced to that amount which would result 27 in allowing the taxpayer to retain a net income of thirty-two 28 thousand dollars or twenty-four thousand dollars as applicable. 29 The preceding sentence does not apply to estates or trusts. 30 For the purpose of this subsection , the entire net income, 31 including any part of the net income not allocated to Iowa, 32 shall be taken into account. For purposes of this subsection , 33 net income includes all amounts of pensions or other retirement 34 income, except for military retirement pay excluded under 35 -16- HF 2317.3417 (2) 89 jm/jh 16/ 39

section 422.7, subsection 31A , paragraph “a” , or section 422.7, 1 subsection 31B , paragraph “a” , received from any source which is 2 not taxable under this subchapter as a result of the government 3 pension exclusions in section 422.7 , or any other state law. 4 If the combined net income of a husband and wife exceeds 5 thirty-two thousand dollars, neither of them shall receive the 6 benefit of this subsection , and it is immaterial whether they 7 file a joint return or separate returns. However, if a husband 8 and wife file separate returns and have a combined net income 9 of thirty-two thousand dollars or less, neither spouse shall 10 receive the benefit of this paragraph, if one spouse has a net 11 operating loss and elects to carry back or carry forward the 12 loss as provided in section 422.9, subsection 3 . A person 13 who is claimed as a dependent by another person as defined in 14 section 422.12 shall not receive the benefit of this subsection 15 if the person claiming the dependent has net income exceeding 16 thirty-two thousand dollars or twenty-four thousand dollars 17 as applicable or the person claiming the dependent and the 18 person’s spouse have combined net income exceeding thirty-two 19 thousand dollars or twenty-four thousand dollars as applicable. 20 Sec. 27. Section 422.7, subsection 31, Code 2022, is amended 21 to read as follows: 22 31. a. For a person who is disabled, or is fifty-five years 23 of age or older, or is the surviving spouse of an individual or 24 a survivor having an insurable interest in an individual who 25 would have qualified for the exemption under this subsection 26 for the tax year, subtract Subtract , to the extent included, 27 the total amount of received from a governmental or other 28 pension or retirement pay plan , including , but not limited 29 to, defined benefit or defined contribution plans, annuities, 30 individual retirement accounts, plans maintained or contributed 31 to by an employer, or maintained or contributed to by a 32 self-employed person as an employer, and deferred compensation 33 plans or any earnings attributable to the deferred compensation 34 plans , up to a maximum of six thousand dollars for a person, 35 -17- HF 2317.3417 (2) 89 jm/jh 17/ 39

other than a husband or wife, who files a separate state income 1 tax return and up to a maximum of twelve thousand dollars 2 for a husband and wife who file a joint state income tax 3 return. However, a surviving spouse who is not disabled or 4 fifty-five years of age or older can only exclude the amount 5 of pension or retirement pay received as a result of the death 6 of the other spouse. A husband and wife filing separate state 7 income tax returns or separately on a combined state return 8 are allowed a combined maximum exclusion under this subsection 9 of up to twelve thousand dollars. The twelve thousand dollar 10 exclusion shall be allocated to the husband or wife in the 11 proportion that each spouse’s respective pension and retirement 12 pay received bears to total combined pension and retirement 13 pay received received by a person who is disabled, or is 14 fifty-five years of age or older, or is the surviving spouse of 15 an individual or is a survivor having an insurable interest in 16 an individual who would have qualified for the exemption under 17 this subsection for the tax year . 18 b. Married taxpayers who file separate state income tax 19 returns shall allocate their combined annual exclusion amount 20 to each spouse in the proportion that each spouse’s respective 21 income received from a pension or retirement plan bears to the 22 total combined pension or retirement pay received. 23 c. A taxpayer who is not disabled or fifty-five years of 24 age or older and who receives pension or retirement pay as a 25 surviving spouse or as a survivor with an insurable interest 26 in an individual who would have qualified for the exemption 27 for the tax year may only exclude the amount received from a 28 pension or retirement plan in the tax year as a result of the 29 death of the decedent. 30 Sec. 28. EFFECTIVE DATE. This division of this Act takes 31 effect January 1, 2023. 32 Sec. 29. APPLICABILITY. This division of this Act applies 33 to tax years beginning on or after January 1, 2023. 34 DIVISION VII 35 -18- HF 2317.3417 (2) 89 jm/jh 18/ 39

RESEARCH ACTIVITIES TAX CREDIT 1 Sec. 30. Section 15.335, subsection 4, paragraph a, Code 2 2022, is amended to read as follows: 3 a. In lieu of the credit amount computed in subsection 2 , 4 an eligible business may shall elect to compute the credit 5 amount for qualified research expenses incurred in this state 6 in a manner consistent with the alternative simplified credit 7 described in section 41(c)(4) of the Internal Revenue Code if 8 the taxpayer elected or was required to use the alternative 9 simplified credit method for federal income tax purposes for 10 the same taxable year . The taxpayer may make this election 11 regardless of the method used for the taxpayer’s federal income 12 tax. The election made under this paragraph is for the tax 13 year and the taxpayer may use another or the same method for 14 any subsequent tax year. 15 Sec. 31. Section 15.335, subsection 5, Code 2022, is amended 16 to read as follows: 17 5. The credit allowed in this section is in addition to 18 the credit authorized in section 422.10 and section 422.33, 19 subsection 5 . However, if the alternative credit computation 20 method is used in section 422.10 or section 422.33, subsection 21 5 , the credit allowed in this section shall also be computed 22 using that method. The regular or alternative credit allowed 23 in this section shall be computed according to the same claim, 24 calculation, and refund limitations in section 422.10 and 25 section 422.33, subsection 5, as applicable, including those 26 described in section 422.10, subsection 1, paragraph “a” , and 27 section 422.10, subsection 1, paragraph “b” , subparagraph 28 (3), and section 422.10, subsection 4, and those described in 29 section 422.33, subsection 5, paragraph “b” , subparagraph (2), 30 and section 422.33, subsection 5, paragraphs “e” and “g” . 31 Sec. 32. Section 15.335, subsection 8, Code 2022, is amended 32 to read as follows: 33 8. a. Any The following percentage of any credit in excess 34 of the tax liability for the taxable year shall be refunded 35 -19- HF 2317.3417 (2) 89 jm/jh 19/ 39