Senate File 2408 - Enrolled PAG LIN 1 1 SENATE FILE 2408 1 2 1 3 AN ACT 1 4 RELATING TO ELDERLY INCOME TAX RELIEF BY PROVIDING FOR AN 1 5 ELDERLY TAXPAYER INCOME TAX EXCLUSION AND THE PHASING OUT OF 1 6 THE INCOME TAX ON SOCIAL SECURITY BENEFITS AND INCLUDING 1 7 EFFECTIVE AND APPLICABILITY DATE PROVISIONS. 1 8 1 9 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA: 1 10 1 11 Section 1. Section 422.5, Code 2005, is amended by adding 1 12 the following new subsection: 1 13 NEW SUBSECTION. 2A. However, the tax shall not be imposed 1 14 on a resident or nonresident who is at least sixty=five years 1 15 old on December 31 of the tax year and whose net income, as 1 16 defined in section 422.7, is twenty=four thousand dollars or 1 17 less in the case of married persons filing jointly or filing 1 18 separately on a combined return, unmarried heads of household, 1 19 and surviving spouses or eighteen thousand dollars or less in 1 20 the case of all other persons; but in the event that the 1 21 payment of tax under this division would reduce the net income 1 22 to less than twenty=four thousand dollars or eighteen thousand 1 23 dollars as applicable, then the tax shall be reduced to that 1 24 amount which would result in allowing the taxpayer to retain a 1 25 net income of twenty=four thousand dollars or eighteen 1 26 thousand dollars as applicable. The preceding sentence does 1 27 not apply to estates or trusts. For the purpose of this 1 28 subsection, the entire net income, including any part of the 1 29 net income not allocated to Iowa, shall be taken into account. 1 30 For purposes of this subsection, net income includes all 1 31 amounts of pensions or other retirement income received from 1 32 any source which is not taxable under this division as a 1 33 result of the government pension exclusions in section 422.7, 1 34 or any other state law. If the combined net income of a 1 35 husband and wife exceeds twenty=four thousand dollars, neither 2 1 of them shall receive the benefit of this subsection, and it 2 2 is immaterial whether they file a joint return or separate 2 3 returns. However, if a husband and wife file separate returns 2 4 and have a combined net income of twenty=four thousand dollars 2 5 or less, neither spouse shall receive the benefit of this 2 6 paragraph, if one spouse has a net operating loss and elects 2 7 to carry back or carry forward the loss as provided in section 2 8 422.9, subsection 3. A person who is claimed as a dependent 2 9 by another person as defined in section 422.12 shall not 2 10 receive the benefit of this subsection if the person claiming 2 11 the dependent has net income exceeding twenty=four thousand 2 12 dollars or eighteen thousand dollars as applicable or the 2 13 person claiming the dependent and the person's spouse have 2 14 combined net income exceeding twenty=four thousand dollars or 2 15 eighteen thousand dollars as applicable. 2 16 In addition, if the married persons', filing jointly or 2 17 filing separately on a combined return, unmarried head of 2 18 household's, or surviving spouse's net income exceeds 2 19 twenty=four thousand dollars, the regular tax imposed under 2 20 this division shall be the lesser of the maximum state 2 21 individual income tax rate times the portion of the net income 2 22 in excess of twenty=four thousand dollars or the regular tax 2 23 liability computed without regard to this sentence. Taxpayers 2 24 electing to file separately shall compute the alternate tax 2 25 described in this paragraph using the total net income of the 2 26 husband and wife. The alternate tax described in this 2 27 paragraph does not apply if one spouse elects to carry back or 2 28 carry forward the loss as provided in section 422.9, 2 29 subsection 3. 2 30 This subsection applies even though one spouse has not 2 31 attained the age of sixty=five, if the other spouse is at 2 32 least sixty=five at the end of the tax year. 2 33 This subsection is repealed January 1, 2009. 2 34 Sec. 2. Section 422.5, Code 2005, is amended by adding the 2 35 following new subsection: 3 1 NEW SUBSECTION. 2B. However, the tax shall not be imposed 3 2 on a resident or nonresident who is at least sixty=five years 3 3 old on December 31 of the tax year and whose net income, as 3 4 defined in section 422.7, is thirty=two thousand dollars or 3 5 less in the case of married persons filing jointly or filing 3 6 separately on a combined return, unmarried heads of household, 3 7 and surviving spouses or twenty=four thousand dollars or less 3 8 in the case of all other persons; but in the event that the 3 9 payment of tax under this division would reduce the net income 3 10 to less than thirty=two thousand dollars or twenty=four 3 11 thousand dollars as applicable, then the tax shall be reduced 3 12 to that amount which would result in allowing the taxpayer to 3 13 retain a net income of thirty=two thousand dollars or 3 14 twenty=four thousand dollars as applicable. The preceding 3 15 sentence does not apply to estates or trusts. For the purpose 3 16 of this subsection, the entire net income, including any part 3 17 of the net income not allocated to Iowa, shall be taken into 3 18 account. For purposes of this subsection, net income includes 3 19 all amounts of pensions or other retirement income received 3 20 from any source which is not taxable under this division as a 3 21 result of the government pension exclusions in section 422.7, 3 22 or any other state law. If the combined net income of a 3 23 husband and wife exceeds thirty=two thousand dollars, neither 3 24 of them shall receive the benefit of this subsection, and it 3 25 is immaterial whether they file a joint return or separate 3 26 returns. However, if a husband and wife file separate returns 3 27 and have a combined net income of thirty=two thousand dollars 3 28 or less, neither spouse shall receive the benefit of this 3 29 paragraph, if one spouse has a net operating loss and elects 3 30 to carry back or carry forward the loss as provided in section 3 31 422.9, subsection 3. A person who is claimed as a dependent 3 32 by another person as defined in section 422.12 shall not 3 33 receive the benefit of this subsection if the person claiming 3 34 the dependent has net income exceeding thirty=two thousand 3 35 dollars or twenty=four thousand dollars as applicable or the 4 1 person claiming the dependent and the person's spouse have 4 2 combined net income exceeding thirty=two thousand dollars or 4 3 twenty=four thousand dollars as applicable. 4 4 In addition, if the married persons', filing jointly or 4 5 filing separately on a combined return, unmarried head of 4 6 household's, or surviving spouse's net income exceeds 4 7 thirty=two thousand dollars, the regular tax imposed under 4 8 this division shall be the lesser of the maximum state 4 9 individual income tax rate times the portion of the net income 4 10 in excess of thirty=two thousand dollars or the regular tax 4 11 liability computed without regard to this sentence. Taxpayers 4 12 electing to file separately shall compute the alternate tax 4 13 described in this paragraph using the total net income of the 4 14 husband and wife. The alternate tax described in this 4 15 paragraph does not apply if one spouse elects to carry back or 4 16 carry forward the loss as provided in section 422.9, 4 17 subsection 3. 4 18 This subsection applies even though one spouse has not 4 19 attained the age of sixty=five, if the other spouse is at 4 20 least sixty=five at the end of the tax year. 4 21 Sec. 3. Section 422.5, subsection 7, Code 2005, is amended 4 22 to read as follows: 4 23 7. In addition to the other taxes imposed by this section, 4 24 a tax is imposed on the amount of a lump sum distribution for 4 25 which the taxpayer has elected under section 402(e) of the 4 26 Internal Revenue Code to be separately taxed for federal 4 27 income tax purposes for the tax year. The rate of tax is 4 28 equal to twenty=five percent of the separate federal tax 4 29 imposed on the amount of the lump sum distribution. A 4 30 nonresident is liable for this tax only on that portion of the 4 31 lump sum distribution allocable to Iowa. The total amount of 4 32 the lump sum distribution subject to separate federal tax 4 33 shall be included in net income for purposes of determining 4 34 eligibility underthe thirteen thousand five hundred dollar or 4 35 less or nine thousand dollar or less exclusion, as applicable5 1 subsections 2 and 2A or 2B, as applicable. 5 2 Sec. 4. Section 422.7, subsection 13, Code Supplement 5 3 2005, is amended to read as follows: 5 4 13. a. Subtract, to the extent included, the amount of 5 5 additional social security benefits taxable under the Internal 5 6 Revenue Code for tax years beginning on or after January 1, 5 7 1994, but before January 1, 2014. The amount of social 5 8 security benefits taxable as provided in section 86 of the 5 9 Internal Revenue Code, as amended up to and including January 5 10 1, 1993, continues to apply for state income tax purposes for 5 11 tax years beginning on or after January 1, 1994, but before 5 12 January 1, 2014. 5 13 b. (1) For tax years beginning in the 2007 calendar year, 5 14 subtract, to the extent included, thirty=two percent of 5 15 taxable social security benefits remaining after the 5 16 subtraction in paragraph "a". 5 17 (2) For tax years beginning in the 2008 calendar year, 5 18 subtract, to the extent included, thirty=two percent of 5 19 taxable social security benefits remaining after the 5 20 subtraction in paragraph "a". 5 21 (3) For tax years beginning in the 2009 calendar year, 5 22 subtract, to the extent included, forty=three percent of 5 23 taxable social security benefits remaining after the 5 24 subtraction in paragraph "a". 5 25 (4) For tax years beginning in the 2010 calendar year, 5 26 subtract, to the extent included, fifty=five percent of 5 27 taxable social security benefits remaining after the 5 28 subtraction in paragraph "a". 5 29 (5) For tax years beginning in the 2011 calendar year, 5 30 subtract, to the extent included, sixty=seven percent of 5 31 taxable social security benefits remaining after the 5 32 subtraction in paragraph "a". 5 33 (6) For tax years beginning in the 2012 calendar year, 5 34 subtract, to the extent included, seventy=seven percent of 5 35 taxable social security benefits remaining after the 6 1 subtraction in paragraph "a". 6 2 (7) For tax years beginning in the 2013 calendar year, 6 3 subtract, to the extent included, eighty=nine percent of 6 4 taxable social security benefits remaining after the 6 5 subtraction in paragraph "a". 6 6 c. Married taxpayers, who file a joint federal income tax 6 7 return and who elect to file separate returns or who elect 6 8 separate filing on a combined return for state income tax 6 9 purposes, shall allocate between the spouses the amount of 6 10 benefits subtracted under paragraphs "a" and "b" from net 6 11 income in the ratio of the social security benefits received 6 12 by each spouse to the total of these benefits received by both 6 13 spouses. 6 14 d. For tax years beginning on or after January 1, 2014, 6 15 subtract, to the extent included, the amount of social 6 16 security benefits taxable under section 86 of the Internal 6 17 Revenue Code. 6 18 Sec. 5. EFFECTIVE AND APPLICABILITY DATE PROVISIONS. 6 19 1. The section of this Act enacting section 422.5, 6 20 subsection 2A, takes effect January 1, 2007, and applies to 6 21 tax years beginning on or after January 1, 2007, but before 6 22 January 1, 2009. 6 23 2. The section of this Act enacting section 422.5, 6 24 subsection 2B, takes effect January 1, 2009, for tax years 6 25 beginning on or after that date. 6 26 3. The section of this Act amending section 422.5, 6 27 subsection 7, takes effect January 1, 2007, for tax years 6 28 beginning on or after that date. 6 29 4. The section of this Act amending section 422.7, 6 30 subsection 13, takes effect January 1, 2007, for tax years 6 31 beginning on or after that date. 6 32 6 33 6 34 6 35 JEFFREY M. LAMBERTI 7 1 President of the Senate 7 2 7 3 7 4 7 5 CHRISTOPHER C. RANTS 7 6 Speaker of the House 7 7 7 8 I hereby certify that this bill originated in the Senate and 7 9 is known as Senate File 2408, Eighty=first General Assembly. 7 10 7 11 7 12 7 13 MICHAEL E. MARSHALL 7 14 Secretary of the Senate 7 15 Approved , 2006 7 16 7 17 7 18 7 19 THOMAS J. VILSACK 7 20 Governor