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:
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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.
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