House Study Bill 502 HOUSE FILE BY (PROPOSED COMMITTEE ON WAYS AND MEANS BILL BY CHAIRPERSON VAN FOSSEN) Passed House, Date Passed Senate, Date Vote: Ayes Nays Vote: Ayes Nays Approved A BILL FOR 1 An Act phasing out the state income tax on social security 2 benefits and on pension and retirement income and including 3 effective and applicability date provisions. 4 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA: 5 TLSB 5621YC 81 6 mg/sh/8 PAG LIN 1 1 Section 1. Section 422.7, subsection 13, Code Supplement 1 2 2005, is amended to read as follows: 1 3 13. a. Subtract, to the extent included, the amount of 1 4 additional social security benefits taxable under the Internal 1 5 Revenue Code for tax years beginning on or after January 1, 1 6 1994, but before January 1, 2011. The amount of social 1 7 security benefits taxable as provided in section 86 of the 1 8 Internal Revenue Code, as amended up to and including January 1 9 1, 1993, continues to apply for state income tax purposes for 1 10 tax years beginning on or after January 1, 1994, but before 1 11 January 1, 2011. 1 12 b. (1) For tax years beginning in the 2007 calendar year, 1 13 subtract, to the extent included, twenty percent of taxable 1 14 social security benefits remaining after the subtraction in 1 15 paragraph "a". 1 16 (2) For tax years beginning in the 2008 calendar year, 1 17 subtract, to the extent included, forty percent of taxable 1 18 social security benefits remaining after the subtraction in 1 19 paragraph "a". 1 20 (3) For tax years beginning in the 2009 calendar year, 1 21 subtract, to the extent included, sixty percent of taxable 1 22 social security benefits remaining after the subtraction in 1 23 paragraph "a". 1 24 (4) For tax years beginning in the 2010 calendar year, 1 25 subtract, to the extent included, eighty percent of taxable 1 26 social security benefits remaining after the subtraction in 1 27 paragraph "a". 1 28 c. Married taxpayers, who file a joint federal income tax 1 29 return and who elect to file separate returns or who elect 1 30 separate filing on a combined return for state income tax 1 31 purposes, shall allocate between the spouses the amount of 1 32 benefits subtracted under paragraphs "a" and "b" from net 1 33 income in the ratio of the social security benefits received 1 34 by each spouse to the total of these benefits received by both 1 35 spouses. 2 1 d. For tax years beginning on or after January 1, 2011, 2 2 subtract, to the extent included, the amount of social 2 3 security benefits taxable under section 86 of the Internal 2 4 Revenue Code. 2 5 Sec. 2. Section 422.7, subsection 31, Code Supplement 2 6 2005, is amended to read as follows: 2 7 31. a. For a person who is disabled, or is fifty=five 2 8 years of age or older, or is the surviving spouse of an 2 9 individual or a survivor having an insurable interest in an 2 10 individual who would have qualified for the exemption under 2 11 this subsection for the tax year, subtract, to the extent 2 12 included, the total amount of a governmental or other pension 2 13 or retirement pay, including, but not limited to, defined 2 14 benefit or defined contribution plans, annuities, individual 2 15 retirement accounts, plans maintained or contributed to by an 2 16 employer, or maintained or contributed to by a self=employed 2 17 person as an employer, and deferred compensation plans or any 2 18 earnings attributable to the deferred compensation plans, up 2 19 to a maximum of six thousand dollars for a person, other than 2 20 a husband or wife, who files a separate state income tax 2 21 return and up to a maximum of twelve thousand dollars for a 2 22 husband and wife who file a joint state income tax return. 2 23 However, a surviving spouse who is not disabled or fifty=five 2 24 years of age or older can only exclude the amount of pension 2 25 or retirement pay received as a result of the death of the 2 26 other spouse. A husband and wife filing separate state income 2 27 tax returns or separately on a combined state return are 2 28 allowed a combined maximum exclusion under this subsection of 2 29 up to twelve thousand dollars. The twelve thousand dollar 2 30 exclusion shall be allocated to the husband or wife in the 2 31 proportion that each spouse's respective pension and 2 32 retirement pay received bears to total combined pension and 2 33 retirement pay received. 2 34 b. For the tax year beginning January 1, 2007, subtract an 2 35 amount equal to twenty percent of the income described in 3 1 paragraph "a" after the exclusion in paragraph "a" is 3 2 subtracted. 3 3 c. For the tax year beginning January 1, 2008, subtract an 3 4 amount equal to forty percent of the income described in 3 5 paragraph "a" after the exclusion in paragraph "a" is 3 6 subtracted. 3 7 d. For the tax year beginning January 1, 2009, subtract an 3 8 amount equal to sixty percent of the income described in 3 9 paragraph "a" after the exclusion in paragraph "a" is 3 10 subtracted. 3 11 e. For the tax year beginning January 1, 2010, subtract an 3 12 amount equal to eighty percent of the income described in 3 13 paragraph "a" after the exclusion in paragraph "a" is 3 14 subtracted. 3 15 f. For tax years beginning on or after January 1, 2011, 3 16 subtract the total amount of the income described in paragraph 3 17 "a". 3 18 g. For a husband and wife filing separate state income tax 3 19 returns or separately on a combined state return, the 3 20 additional exclusion in paragraphs "b" through "f" shall be 3 21 allocated to the husband or wife in the proportion that each 3 22 spouse's respective pension and retirement pay received bears 3 23 to total combined pension and retirement pay received. 3 24 Sec. 3. EFFECTIVE AND APPLICABILITY DATE PROVISIONS. This 3 25 Act takes effect January 1, 2007, and applies to tax years 3 26 beginning on or after that date. 3 27 EXPLANATION 3 28 This bill phases out the state income tax on social 3 29 security benefits over a five=year period and phases out the 3 30 state income tax on pension and retirement income over the 3 31 same five=year period. 3 32 For the tax year beginning on January 1, 2007, 20 percent 3 33 of taxable social security benefits are exempted; for the tax 3 34 year beginning on January 1, 2008, 40 percent of taxable 3 35 social security benefits are exempted; for the tax year 4 1 beginning on January 1, 2009, 60 percent of taxable social 4 2 security benefits are exempted; for the tax year beginning on 4 3 January 1, 2010, 80 percent of taxable social security 4 4 benefits are exempted; and for tax years beginning on or after 4 5 January 1, 2011, 100 percent of social security benefits are 4 6 exempted from state income taxation. 4 7 For the tax year beginning January 1, 2007, an additional 4 8 20 percent of pension or retirement income is exempted after 4 9 the $6,000 (for single filers) or $12,000 (for married filers) 4 10 is subtracted. For the tax year beginning January 1, 2008, an 4 11 additional 40 percent is exempted; for the tax year beginning 4 12 January 1, 2009, an additional 60 percent is exempted; for the 4 13 tax year beginning January 1, 2010, an additional 80 percent 4 14 is exempted; and for tax years beginning January 1, 2011, and 4 15 all subsequent tax years, the total amount of pension and 4 16 retirement income is exempted from state income taxation. 4 17 The bill takes effect January 1, 2007, and applies to tax 4 18 years beginning on or after that date. 4 19 LSB 5621YC 81 4 20 mg:rj/sh/8