Senate Study Bill 3278
SENATE FILE
BY (PROPOSED COMMITTEE ON
WAYS AND MEANS BILL BY
CO=CHAIRPERSON BOLKCOM)
Passed Senate, Date Passed House, Date
Vote: Ayes Nays Vote: Ayes Nays
Approved
A BILL FOR
1 An Act relating to elderly income tax relief by providing for an
2 elderly taxpayer income tax exclusion and the phasing out of
3 the income tax on social security benefits and including
4 effective and applicability date provisions.
5 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA:
6 TLSB 6729XK 81
7 mg/je/5
PAG LIN
1 1 Section 1. Section 422.5, Code 2005, is amended by adding
1 2 the following new subsection:
1 3 NEW SUBSECTION. 2A. However, the tax shall not be imposed
1 4 on a resident or nonresident who is at least sixty=five years
1 5 old on December 31 of the tax year and whose net income, as
1 6 defined in section 422.7, is twenty=four thousand dollars or
1 7 less in the case of married persons filing jointly or filing
1 8 separately on a combined return, unmarried heads of household,
1 9 and surviving spouses or eighteen thousand dollars or less in
1 10 the case of all other persons; but in the event that the
1 11 payment of tax under this division would reduce the net income
1 12 to less than twenty=four thousand dollars or eighteen thousand
1 13 dollars as applicable, then the tax shall be reduced to that
1 14 amount which would result in allowing the taxpayer to retain a
1 15 net income of twenty=four thousand dollars or eighteen
1 16 thousand dollars as applicable. The preceding sentence does
1 17 not apply to estates or trusts. For the purpose of this
1 18 subsection, the entire net income, including any part of the
1 19 net income not allocated to Iowa, shall be taken into account.
1 20 For purposes of this subsection, net income includes all
1 21 amounts of pensions or other retirement income received from
1 22 any source which is not taxable under this division as a
1 23 result of the government pension exclusions in section 422.7,
1 24 or any other state law. If the combined net income of a
1 25 husband and wife exceeds twenty=four thousand dollars, neither
1 26 of them shall receive the benefit of this subsection, and it
1 27 is immaterial whether they file a joint return or separate
1 28 returns. However, if a husband and wife file separate returns
1 29 and have a combined net income of twenty=four thousand dollars
1 30 or less, neither spouse shall receive the benefit of this
1 31 paragraph, if one spouse has a net operating loss and elects
1 32 to carry back or carry forward the loss as provided in section
1 33 422.9, subsection 3. A person who is claimed as a dependent
1 34 by another person as defined in section 422.12 shall not
1 35 receive the benefit of this subsection if the person claiming
2 1 the dependent has net income exceeding twenty=four thousand
2 2 dollars or eighteen thousand dollars as applicable or the
2 3 person claiming the dependent and the person's spouse have
2 4 combined net income exceeding twenty=four thousand dollars or
2 5 eighteen thousand dollars as applicable.
2 6 In addition, if the married persons', filing jointly or
2 7 filing separately on a combined return, unmarried head of
2 8 household's, or surviving spouse's net income exceeds
2 9 twenty=four thousand dollars, the regular tax imposed under
2 10 this division shall be the lesser of the maximum state
2 11 individual income tax rate times the portion of the net income
2 12 in excess of twenty=four thousand dollars or the regular tax
2 13 liability computed without regard to this sentence. Taxpayers
2 14 electing to file separately shall compute the alternate tax
2 15 described in this paragraph using the total net income of the
2 16 husband and wife. The alternate tax described in this
2 17 paragraph does not apply if one spouse elects to carry back or
2 18 carry forward the loss as provided in section 422.9,
2 19 subsection 3.
2 20 This subsection applies even though one spouse has not
2 21 attained the age of sixty=five, if the other spouse is at
2 22 least sixty=five at the end of the tax year.
2 23 This subsection is repealed January 1, 2009.
2 24 Sec. 2. Section 422.5, Code 2005, is amended by adding the
2 25 following new subsection:
2 26 NEW SUBSECTION. 2B. However, the tax shall not be imposed
2 27 on a resident or nonresident who is at least sixty=five years
2 28 old on December 31 of the tax year and whose net income, as
2 29 defined in section 422.7, is thirty=two thousand dollars or
2 30 less in the case of married persons filing jointly or filing
2 31 separately on a combined return, unmarried heads of household,
2 32 and surviving spouses or twenty=four thousand dollars or less
2 33 in the case of all other persons; but in the event that the
2 34 payment of tax under this division would reduce the net income
2 35 to less than thirty=two thousand dollars or twenty=four
3 1 thousand dollars as applicable, then the tax shall be reduced
3 2 to that amount which would result in allowing the taxpayer to
3 3 retain a net income of thirty=two thousand dollars or
3 4 twenty=four thousand dollars as applicable. The preceding
3 5 sentence does not apply to estates or trusts. For the purpose
3 6 of this subsection, the entire net income, including any part
3 7 of the net income not allocated to Iowa, shall be taken into
3 8 account. For purposes of this subsection, net income includes
3 9 all amounts of pensions or other retirement income received
3 10 from any source which is not taxable under this division as a
3 11 result of the government pension exclusions in section 422.7,
3 12 or any other state law. If the combined net income of a
3 13 husband and wife exceeds thirty=two thousand dollars, neither
3 14 of them shall receive the benefit of this subsection, and it
3 15 is immaterial whether they file a joint return or separate
3 16 returns. However, if a husband and wife file separate returns
3 17 and have a combined net income of thirty=two thousand dollars
3 18 or less, neither spouse shall receive the benefit of this
3 19 paragraph, if one spouse has a net operating loss and elects
3 20 to carry back or carry forward the loss as provided in section
3 21 422.9, subsection 3. A person who is claimed as a dependent
3 22 by another person as defined in section 422.12 shall not
3 23 receive the benefit of this subsection if the person claiming
3 24 the dependent has net income exceeding thirty=two thousand
3 25 dollars or twenty=four thousand dollars as applicable or the
3 26 person claiming the dependent and the person's spouse have
3 27 combined net income exceeding thirty=two thousand dollars or
3 28 twenty=four thousand dollars as applicable.
3 29 In addition, if the married persons', filing jointly or
3 30 filing separately on a combined return, unmarried head of
3 31 household's, or surviving spouse's net income exceeds
3 32 thirty=two thousand dollars, the regular tax imposed under
3 33 this division shall be the lesser of the maximum state
3 34 individual income tax rate times the portion of the net income
3 35 in excess of thirty=two thousand dollars or the regular tax
4 1 liability computed without regard to this sentence. Taxpayers
4 2 electing to file separately shall compute the alternate tax
4 3 described in this paragraph using the total net income of the
4 4 husband and wife. The alternate tax described in this
4 5 paragraph does not apply if one spouse elects to carry back or
4 6 carry forward the loss as provided in section 422.9,
4 7 subsection 3.
4 8 This subsection applies even though one spouse has not
4 9 attained the age of sixty=five, if the other spouse is at
4 10 least sixty=five at the end of the tax year.
4 11 Sec. 3. Section 422.5, subsection 7, Code 2005, is amended
4 12 to read as follows:
4 13 7. In addition to the other taxes imposed by this section,
4 14 a tax is imposed on the amount of a lump sum distribution for
4 15 which the taxpayer has elected under section 402(e) of the
4 16 Internal Revenue Code to be separately taxed for federal
4 17 income tax purposes for the tax year. The rate of tax is
4 18 equal to twenty=five percent of the separate federal tax
4 19 imposed on the amount of the lump sum distribution. A
4 20 nonresident is liable for this tax only on that portion of the
4 21 lump sum distribution allocable to Iowa. The total amount of
4 22 the lump sum distribution subject to separate federal tax
4 23 shall be included in net income for purposes of determining
4 24 eligibility under the thirteen thousand five hundred dollar or
4 25 less or nine thousand dollar or less exclusion, as applicable
4 26 subsections 2 and 2A or 2B, as applicable.
4 27 Sec. 4. Section 422.7, subsection 13, Code Supplement
4 28 2005, is amended to read as follows:
4 29 13. a. Subtract, to the extent included, the amount of
4 30 additional social security benefits taxable under the Internal
4 31 Revenue Code for tax years beginning on or after January 1,
4 32 1994, but before January 1, 2014. The amount of social
4 33 security benefits taxable as provided in section 86 of the
4 34 Internal Revenue Code, as amended up to and including January
4 35 1, 1993, continues to apply for state income tax purposes for
5 1 tax years beginning on or after January 1, 1994, but before
5 2 January 1, 2014.
5 3 b. (1) For tax years beginning in the 2007 calendar year,
5 4 subtract, to the extent included, thirty=two percent of
5 5 taxable social security benefits remaining after the
5 6 subtraction in paragraph "a".
5 7 (2) For tax years beginning in the 2008 calendar year,
5 8 subtract, to the extent included, thirty=two percent of
5 9 taxable social security benefits remaining after the
5 10 subtraction in paragraph "a".
5 11 (3) For tax years beginning in the 2009 calendar year,
5 12 subtract, to the extent included, forty=three percent of
5 13 taxable social security benefits remaining after the
5 14 subtraction in paragraph "a".
5 15 (4) For tax years beginning in the 2010 calendar year,
5 16 subtract, to the extent included, fifty=five percent of
5 17 taxable social security benefits remaining after the
5 18 subtraction in paragraph "a".
5 19 (5) For tax years beginning in the 2011 calendar year,
5 20 subtract, to the extent included, sixty=seven percent of
5 21 taxable social security benefits remaining after the
5 22 subtraction in paragraph "a".
5 23 (6) For tax years beginning in the 2012 calendar year,
5 24 subtract, to the extent included, seventy=seven percent of
5 25 taxable social security benefits remaining after the
5 26 subtraction in paragraph "a".
5 27 (7) For tax years beginning in the 2013 calendar year,
5 28 subtract, to the extent included, eighty=nine percent of
5 29 taxable social security benefits remaining after the
5 30 subtraction in paragraph "a".
5 31 c. Married taxpayers, who file a joint federal income tax
5 32 return and who elect to file separate returns or who elect
5 33 separate filing on a combined return for state income tax
5 34 purposes, shall allocate between the spouses the amount of
5 35 benefits subtracted under paragraphs "a" and "b" from net
6 1 income in the ratio of the social security benefits received
6 2 by each spouse to the total of these benefits received by both
6 3 spouses.
6 4 d. For tax years beginning on or after January 1, 2014,
6 5 subtract, to the extent included, the amount of social
6 6 security benefits taxable under section 86 of the Internal
6 7 Revenue Code.
6 8 Sec. 5. EFFECTIVE AND APPLICABILITY DATE PROVISIONS.
6 9 1. The section of this Act enacting section 422.5,
6 10 subsection 2A, takes effect January 1, 2007, and applies to
6 11 tax years beginning on or after January 1, 2007, but before
6 12 January 1, 2009.
6 13 2. The section of this Act enacting section 422.5,
6 14 subsection 2B, takes effect January 1, 2009, for tax years
6 15 beginning on or after that date.
6 16 3. The section of this Act amending section 422.5,
6 17 subsection 7, takes effect January 1, 2007, for tax years
6 18 beginning on or after that date.
6 19 4. The section of this Act amending section 422.7,
6 20 subsection 13, takes effect January 1, 2007, for tax years
6 21 beginning on or after that date.
6 22 EXPLANATION
6 23 This bill makes changes to the individual income tax that
6 24 benefits elderly individuals.
6 25 Code section 422.5, new subsections 2A and 2B, are enacted,
6 26 which provide that no tax is owed if an individual is 65 years
6 27 of age and has a net income of less than certain amounts.
6 28 These amounts are $24,000 if the individual is married, a head
6 29 of household, or a surviving spouse, and $18,000 for all other
6 30 persons. These amounts apply to the 2007 and 2008 tax years.
6 31 Beginning with the 2009 tax year, the amounts are increased to
6 32 $32,000 and $24,000, respectively. Code section 422.5,
6 33 subsection 7, is amended to specify that the total amount of a
6 34 lump=sum distribution subject to federal tax is to be included
6 35 in income for purposes of determining eligibility under new
7 1 subsection 2A or 2B, as applicable.
7 2 Code section 422.7, subsection 13, relating to the amount
7 3 of social security benefits taxed, is amended to phase out the
7 4 taxing of such benefits beginning with the 2007 tax year and
7 5 ending with the 2014 tax year when the entire amount of social
7 6 security benefits is exempt from tax.
7 7 LSB 6729XK 81
7 8 mg:rj/je/5