S.F. _____ H.F. _____ DIVISION I 1 SALE OF CERTAIN QUALIFIED STOCK —— NET CAPITAL GAIN EXCLUSION 2 Section 1. Section 422.7, Code 2022, is amended by adding 3 the following new subsection: 4 NEW SUBSECTION . 63. a. Subtract the following percentage 5 of the net capital gain from the sale or exchange of capital 6 stock of a qualified corporation for which an election is made 7 by an employee-owner: 8 (1) For the tax year beginning in the 2023 calendar year, 9 thirty-three percent. 10 (2) For the tax year beginning in the 2024 calendar year, 11 sixty-six percent. 12 (3) For tax years beginning on or after January 1, 2025, one 13 hundred percent. 14 b. (1) An employee-owner is entitled to make one 15 irrevocable lifetime election to exclude the net capital gain 16 from the sale or exchange of capital stock of one qualified 17 corporation which capital stock was acquired by the employee- 18 owner while employed and on account of employment by such 19 qualified corporation. 20 (2) The election shall apply to all subsequent sales 21 or exchanges of qualifying capital stock of the elected 22 corporation within fifteen years of the date of the election, 23 provided that the subsequent sales or exchanges were of capital 24 stock in the same qualified corporation and were acquired by 25 the employee-owner while employed and on account of employment 26 by such qualified corporation. 27 (3) The election shall apply to qualifying capital stock 28 that has been transferred by inter vivos gift from the 29 employee-owner to the employee-owner’s spouse or to a trust 30 for the benefit of the employee-owner’s spouse following the 31 transfer. This subparagraph (3) shall apply to a spouse 32 only if the spouse was married to the employee-owner on the 33 date of the sale or exchange or the date of death of the 34 employee-owner. 35 -1- LSB 5332XL (7) 89 jm/jh 1/ 29

S.F. _____ H.F. _____ (4) If the employee-owner dies after having sold or 1 exchanged qualifying capital stock without having made an 2 election under this subsection, the surviving spouse or, if 3 there is no surviving spouse, the personal representative of 4 the employee-owner’s estate, may make the election that would 5 have qualified under this subsection. 6 (5) The election shall be made in the manner and form 7 prescribed by the department and shall be included with the 8 taxpayer’s state income tax return for the taxable year in 9 which the election is made. 10 c. For purposes of this subsection: 11 (1) “Capital stock” means common or preferred stock, either 12 voting or nonvoting. “Capital stock” does not include stock 13 rights, stock warrants, stock options, or debt securities. 14 (2) “Employee-owner” means an individual who owns capital 15 stock in a qualified corporation for at least ten years, which 16 capital stock was acquired by the individual while employed and 17 on account of employment by such corporation for at least ten 18 cumulative years. 19 (3) “Personal representative” means the same as defined in 20 section 633.3, or if there is no such personal representative 21 appointed, then the person legally authorized to perform 22 substantially the same functions. 23 (4) (a) “Qualified corporation” means, with respect to an 24 employee-owner, a corporation which, at the time of the first 25 sale or exchange for which an election is made by the employee- 26 owner under this subsection, meets all of the following 27 conditions: 28 (i) The corporation employed individuals in this state for 29 at least ten years. 30 (ii) The corporation has had at least five shareholders for 31 the ten years prior to the first sale or exchange under this 32 subsection. 33 (iii) The corporation has had at least two shareholders or 34 groups of shareholders who are not related for the ten years 35 -2- LSB 5332XL (7) 89 jm/jh 2/ 29

S.F. _____ H.F. _____ prior to the first sale or exchange under this subsection. 1 Two persons are considered related when, under section 318 of 2 the Internal Revenue Code, one is a person who owns, directly 3 or indirectly, capital stock that if directly owned would be 4 attributed to the other person, or is the brother, sister, 5 aunt, uncle, cousin, niece, or nephew of the other person who 6 owns capital stock either directly or indirectly. 7 (b) “Qualified corporation” includes any member of an Iowa 8 affiliated group if the Iowa affiliated group includes a member 9 that has employed individuals in this state for at least ten 10 years. For purposes of this subparagraph division, “Iowa 11 affiliated group” means an affiliated group that has made a 12 valid election to file an Iowa consolidated income tax return 13 under section 422.37 in the year in which the deduction under 14 this subsection is claimed. “Member” includes any entity 15 included in the consolidated return under section 422.37, 16 subsection 2, for the tax year in which the deduction is 17 claimed. 18 (c) “Qualified corporation” also includes any corporation 19 that was a party to a reorganization that was entirely or 20 substantially tax free if such reorganization occurred during 21 or after the employment of the employee-owner. 22 Sec. 2. EFFECTIVE DATE. This division of this Act takes 23 effect January 1, 2023. 24 Sec. 3. APPLICABILITY. This division of this Act applies to 25 tax years beginning on or after January 1, 2023. 26 DIVISION II 27 RETIRED FARMER LEASE INCOME EXCLUSION 28 Sec. 4. Section 422.7, Code 2022, is amended by adding the 29 following new subsection: 30 NEW SUBSECTION . 21A. a. Subtract, to the extent included, 31 net income received by an eligible individual pursuant to a 32 farm tenancy agreement covering real property held by the 33 eligible individual for ten or more years, if the eligible 34 individual materially participated in a farming business for 35 -3- LSB 5332XL (7) 89 jm/jh 3/ 29

S.F. _____ H.F. _____ ten or more years. 1 b. An individual who elects to exclude income received 2 pursuant to a farm tenancy agreement under this subsection 3 shall not claim any of the following in the tax year in which 4 the election is made or in any succeeding year: 5 (1) The capital gain exclusion under section 422.7, 6 subsection 21. 7 (2) The beginning farmer tax credit under section 422.11E. 8 c. Married individuals who file separate state income tax 9 returns shall allocate their combined annual exclusion limit 10 to each spouse in the proportion that each spouse’s respective 11 net income from a farm tenancy agreement bears to the total net 12 income from a farm tenancy agreement. 13 d. The department shall establish criteria, by rule, 14 relating to whether and how a surviving spouse may claim the 15 income exclusion for which a deceased eligible individual would 16 have been eligible under this subsection. 17 e. Net income from a farm tenancy agreement earned, 18 received, or reported by an entity taxed as a partnership 19 for federal tax purposes, an S corporation, or a trust or 20 estate is not eligible for the election and deduction in this 21 subsection, even if such net income ultimately passes through 22 to an eligible individual. 23 f. For purposes of this subsection: 24 (1) “Eligible individual” means an individual who is 25 disabled or who is fifty-five years of age or older at the time 26 the election is made, who no longer materially participates in 27 a farming business at the time the election is made, and who, 28 as an owner-lessor, is party to a farm tenancy agreement. 29 (2) “Farm tenancy agreement” means a written agreement 30 outlining the rights and obligations of an owner-lessor and a 31 tenant-lessee where the tenant-lessee has a farm tenancy as 32 defined in section 562.1A. A “farm tenancy agreement” includes 33 cash leases, crop share leases, or livestock share leases. 34 (3) “Farming business” means the production, care, growing, 35 -4- LSB 5332XL (7) 89 jm/jh 4/ 29

S.F. _____ H.F. _____ harvesting, preservation, handling, or storage of crops 1 or forest or fruit trees; the production, care, feeding, 2 management, and housing of livestock; or horticulture, all 3 intended for profit. 4 (4) “Materially participated” means the same as “material 5 participation” in section 469(h) of the Internal Revenue Code. 6 Sec. 5. EFFECTIVE DATE. This division of this Act takes 7 effect January 1, 2023. 8 Sec. 6. APPLICABILITY. This division of this Act applies to 9 tax years beginning on or after January 1, 2023. 10 DIVISION III 11 RETIRED FARMER CAPITAL GAIN EXCLUSION 12 Sec. 7. Section 422.7, subsection 21, Code 2022, is amended 13 by striking the subsection and inserting in lieu thereof the 14 following: 15 21. a. For purposes of this subsection: 16 (1) “Farming business” means the production, care, growing, 17 harvesting, preservation, handling, or storage of crops 18 or forest or fruit trees; the production, care, feeding, 19 management, and housing of livestock; or horticulture, all for 20 intended profit. 21 (2) “Held” shall be determined with reference to the holding 22 period provisions of section 1223 of the Internal Revenue Code 23 and the federal regulations pursuant thereto. 24 (3) “Livestock” means the same as defined in section 717.1. 25 (4) “Materially participated” means the same as “material 26 participation” in section 469(h) of the Internal Revenue Code. 27 (5) (a) “Real property used in a farming business” means 28 all tracts of land and the improvements and structures located 29 on such tracts which are in good faith used primarily for 30 a farming business. Buildings which are primarily used or 31 intended for human habitation are deemed to be used in a 32 farming business when the building is located on or adjacent 33 to the parcel used in the farming business. Land and the 34 nonresidential improvements and structures located on such land 35 -5- LSB 5332XL (7) 89 jm/jh 5/ 29

S.F. _____ H.F. _____ that shall be considered to be used primarily in a farming 1 business include but are not limited to land, improvements 2 or structures used for the storage or maintenance of farm 3 machinery or equipment, for the drying, storage, handling, 4 or preservation of agricultural crops, or for the storage of 5 farm inputs, feed, or manure. Real property used in a farming 6 business shall also include woodland, wasteland, pastureland, 7 and idled land used for the conservation of natural resources 8 including soil and water. 9 (b) Real property classified as agricultural property for 10 Iowa property tax purposes, except real property described 11 in section 441.21, subsection 12, paragraph “a” or “b” , 12 shall be presumed to be real property used in a farming 13 business. This presumption is rebuttable by the department by 14 a preponderance of evidence that the real property did not meet 15 the requirements of subparagraph division (a). 16 (6) “Relative” means a person that satisfies one or more of 17 the following conditions: 18 (a) The individual is related to the taxpayer by 19 consanguinity or affinity within the second degree as 20 determined by common law. 21 (b) The individual is a lineal descendent of the taxpayer. 22 For purposes of this subparagraph division, “lineal descendent” 23 means children of the taxpayer, including legally adopted 24 children and biological children, stepchildren, grandchildren, 25 great-grandchildren, and any other lineal descendent of the 26 taxpayer. 27 (c) An entity in which an individual who satisfies the 28 conditions of either subparagraph division (a) or (b) has a 29 legal or equitable interest as an owner, member, partner, or 30 beneficiary. 31 (7) “Retired farmer” means an individual who is disabled 32 or who is fifty-five years of age or older and who no longer 33 materially participates in a farming business when an exclusion 34 and deduction is claimed under this subsection. 35 -6- LSB 5332XL (7) 89 jm/jh 6/ 29

S.F. _____ H.F. _____ b. Subtract the net capital gain from the sale of real 1 property used in a farming business if one of the following 2 conditions are satisfied: 3 (1) The taxpayer has materially participated in a farming 4 business for a minimum of ten years and has held the real 5 property used in a farming business for a minimum of ten years. 6 If the taxpayer is a retired farmer, the taxpayer is considered 7 to meet the material participation requirement if the taxpayer 8 materially participated in a farming business for ten years or 9 more in the aggregate, prior to making an election under this 10 subsection. 11 (2) The taxpayer has held the real property used in a 12 farming business which is sold to a relative of the taxpayer. 13 c. For a taxpayer who is a retired farmer, subtract the 14 net capital gain from the sale of cattle or horses held by 15 the taxpayer for breeding, draft, dairy, or sporting purposes 16 for a period of twenty-four months or more from the date of 17 acquisition; but only if the taxpayer materially participated 18 in the farming business for five of the eight years preceding 19 the farmer’s retirement or disability and who has sold all or 20 substantially all of the taxpayer’s interest in the farming 21 business by the time the election under this paragraph is made. 22 d. For a taxpayer who is a retired farmer, subtract the net 23 capital gain from the sale of breeding livestock, other than 24 cattle and horses, if the livestock is held by the taxpayer for 25 a period of twelve months or more from the date of acquisition; 26 but only if the taxpayer materially participated in the farming 27 business for five of the eight years preceding the farmer’s 28 retirement or disability and who has sold all or substantially 29 all of the taxpayer’s interest in the farming business by the 30 time the election under this paragraph is made. 31 e. A taxpayer who is a retired farmer may make, subject to 32 the limitations described in paragraphs “f” and “g” , a single, 33 lifetime election to exclude all qualifying capital gains under 34 paragraphs “b” , “c” , and “d” . 35 -7- LSB 5332XL (7) 89 jm/jh 7/ 29

S.F. _____ H.F. _____ f. A taxpayer who is a retired farmer who elects to exclude 1 capital gains under paragraph “b” , “c” , or “d” shall not claim 2 the beginning farmer tax credit under section 422.11E or the 3 exclusion for net income received pursuant to a farm tenancy 4 agreement in section 422.7, subsection 21A, in the tax year in 5 which this election is made or in any subsequent year. 6 g. A taxpayer who is a retired farmer who claims the 7 beginning farmer tax credit under section 422.11E shall not, 8 in the same year, make an election under this subsection. A 9 taxpayer who is a retired farmer and who elects to exclude 10 the net income received from a farm tenancy agreement under 11 section 422.7, subsection 21A, shall not, in the same tax year 12 or in any subsequent tax year, make the election under this 13 subsection. 14 h. Married individuals who file separate state income tax 15 returns shall allocate their combined annual net capital gain 16 exclusion under paragraphs “b” , “c” , and “d” to each spouse in 17 the proportion that each spouse’s respective net capital gain 18 bears to the total net capital gain. 19 i. The department shall establish criteria, by rule, 20 relating to whether and how a surviving spouse may claim the 21 income exclusion for which a deceased retired farmer would have 22 been eligible under this subsection. 23 Sec. 8. REPEAL. 2018 Iowa Acts, chapter 1161, section 113, 24 is repealed. 25 Sec. 9. REPEAL. 2019 Iowa Acts, chapter 162, section 1, is 26 repealed. 27 Sec. 10. EFFECTIVE DATE. This division of this Act takes 28 effect January 1, 2023. 29 Sec. 11. APPLICABILITY. 30 1. This division of this Act applies to tax years beginning 31 on or after January 1, 2023. 32 2. This division of this Act applies to sales consummated on 33 or after the effective date of this division of this Act, and 34 sales consummated prior to the effective date of this division 35 -8- LSB 5332XL (7) 89 jm/jh 8/ 29

S.F. _____ H.F. _____ of this Act shall be governed by the law as it existed prior to 1 the effective date of this division of this Act. 2 DIVISION IV 3 INDIVIDUAL INCOME TAX RATES —— TAX YEARS 2023-2025 4 Sec. 12. Section 422.5, subsection 3, paragraph b, Code 5 2022, is amended to read as follows: 6 b. (1) In lieu of the computation in subsection 1 or 7 2 , or in paragraph “a” of this subsection , if the married 8 persons’, filing jointly or filing separately on a combined 9 return , head of household’s, or surviving spouse’s net income 10 exceeds thirteen thousand five hundred dollars, the regular 11 tax imposed under this subchapter shall be the lesser of the 12 maximum alternate state individual income tax rate specified in 13 subparagraph (2) times the portion of the net income in excess 14 of thirteen thousand five hundred dollars or the regular tax 15 liability computed without regard to this sentence. Taxpayers 16 electing to file separately shall compute the alternate tax 17 described in this paragraph using the total net income of the 18 husband and wife spouses . The alternate tax described in this 19 paragraph does not apply if one spouse elects to carry back or 20 carry forward the loss as provided in section 422.9, subsection 21 3 . 22 (2) (a) (i) (A) For the tax year beginning on or after 23 January 1, 2023, but before January 1, 2024, the alternate tax 24 rate is 6.00 percent. 25 (B) For the tax year beginning on or after January 1, 2024, 26 but before January 1, 2025, the alternate tax rate is 5.70 27 percent. 28 (C) For the tax year beginning on or after January 1, 2025, 29 but before January 1, 2026, the alternate tax rate is 5.20 30 percent. 31 (ii) This subparagraph division (a) is repealed January 1, 32 2026. 33 (b) For tax years beginning on or after January 1, 2026, the 34 alternate tax rate is 4.50 percent. 35 -9- LSB 5332XL (7) 89 jm/jh 9/ 29

S.F. _____ H.F. _____ Sec. 13. Section 422.5, subsection 3B, paragraph b, Code 1 2022, is amended to read as follows: 2 b. (1) In lieu of the computation in subsection 1, 2, or 3 , 3 if the married persons’, filing jointly or filing separately on 4 a combined return , head of household’s, or surviving spouse’s 5 net income exceeds thirty-two thousand dollars, the regular 6 tax imposed under this subchapter shall be the lesser of the 7 maximum alternate state individual income tax rate specified in 8 subparagraph (2) times the portion of the net income in excess 9 of thirty-two thousand dollars or the regular tax liability 10 computed without regard to this sentence. Taxpayers electing 11 to file separately shall compute the alternate tax described in 12 this paragraph using the total net income of the husband and 13 wife spouses . The alternate tax described in this paragraph 14 does not apply if one spouse elects to carry back or carry 15 forward the loss as provided in section 422.9, subsection 3 . 16 (2) (a) (i) (A) For the tax year beginning on or after 17 January 1, 2023, but before January 1, 2024, the alternate tax 18 rate is 6.00 percent. 19 (B) For the tax year beginning on or after January 1, 2024, 20 but before January 1, 2025, the alternate tax rate is 5.70 21 percent. 22 (C) For the tax year beginning on or after January 1, 2025, 23 but before January 1, 2026, the alternate tax rate is 5.20 24 percent. 25 (ii) This subparagraph division (a) is repealed January 1, 26 2026. 27 (b) For tax years beginning on or after January 1, 2026, the 28 alternate tax rate is 4.50 percent. 29 Sec. 14. Section 422.5, subsection 6, Code 2022, is amended 30 to read as follows: 31 6. a. Upon determination of the latest cumulative inflation 32 factor, the director shall multiply each dollar amount set 33 forth in section 422.5A by this cumulative inflation factor, 34 shall round off the resulting product to the nearest one 35 -10- LSB 5332XL (7) 89 jm/jh 10/ 29

S.F. _____ H.F. _____ dollar, and shall incorporate the result into the income tax 1 forms and instructions for each tax year. 2 b. This subsection is repealed on January 1, 2026. 3 Sec. 15. Section 422.5A, Code 2022, is amended by striking 4 the section and inserting in lieu thereof the following: 5 422.5A Tax rates. 6 1. a. The tax imposed in section 422.5 shall be calculated 7 using the following rates in the following tax years in the 8 case of married persons filing jointly: 9 (1) For the tax year beginning on or after January 1, 2023, 10 but before January 1, 2024: 11 (a) On taxable income from 0 through $12,000, the rate of 12 4.40 percent. 13 (b) On taxable income exceeding $12,000 but not exceeding 14 $60,000, the rate of 4.82 percent. 15 (c) On taxable income exceeding $60,000 but not exceeding 16 $150,000, the rate of 5.70 percent. 17 (d) On taxable income exceeding $150,000, the rate of 6.00 18 percent. 19 (2) For the tax year beginning on or after January 1, 2024, 20 but before January 1, 2025: 21 (a) On taxable income from 0 through $12,000, the rate of 22 4.40 percent. 23 (b) On taxable income exceeding $12,000 but not exceeding 24 $60,000, the rate of 4.82 percent. 25 (c) On taxable income exceeding $60,000, the rate of 5.70 26 percent. 27 (3) For the tax year beginning on or after January 1, 2025, 28 but before January 1, 2026: 29 (a) On taxable income from 0 through $12,000, the rate of 30 4.40 percent. 31 (b) On taxable income exceeding $12,000, the rate of 4.82 32 percent. 33 b. The tax imposed in section 422.5 shall be calculated 34 using the following rates in the following tax years in the 35 -11- LSB 5332XL (7) 89 jm/jh 11/ 29

S.F. _____ H.F. _____ case of any other taxpayer other than married persons filing 1 jointly: 2 (1) For the tax year beginning on or after January 1, 2023, 3 but before January 1, 2024: 4 (a) On taxable income from 0 through $6,000, the rate of 5 4.40 percent. 6 (b) On taxable income exceeding $6,000 but not exceeding 7 $30,000, the rate of 4.82 percent. 8 (c) On taxable income exceeding $30,000 but not exceeding 9 $75,000, the rate of 5.70 percent. 10 (d) On taxable income exceeding $75,000, the rate of 6.00 11 percent. 12 (2) For the tax year beginning on or after January 1, 2024, 13 but before January 1, 2025: 14 (a) On taxable income from 0 through $6,000, the rate of 15 4.40 percent. 16 (b) On taxable income exceeding $6,000 but not exceeding 17 $30,000, the rate of 4.82 percent. 18 (c) On taxable income exceeding $30,000, the rate of 5.70 19 percent. 20 (3) For the tax year beginning on or after January 1, 2025, 21 but before January 1, 2026: 22 (a) On taxable income from 0 through $6,000, the rate of 23 4.40 percent. 24 (b) On taxable income exceeding $6,000, the rate of 4.82 25 percent. 26 2. This section is repealed January 1, 2026. 27 Sec. 16. REPEAL. 2018 Iowa Acts, chapter 1161, section 107, 28 is repealed. 29 Sec. 17. EFFECTIVE DATE. This division of this Act takes 30 effect January 1, 2023. 31 Sec. 18. APPLICABILITY. This division of this Act applies 32 to tax years beginning on or after January 1, 2023. 33 DIVISION V 34 INDIVIDUAL INCOME TAX —— FLAT RATE 35 -12- LSB 5332XL (7) 89 jm/jh 12/ 29

S.F. _____ H.F. _____ Sec. 19. Section 421.27, subsection 9, paragraph a, 1 subparagraph (3), Code 2022, is amended to read as follows: 2 (3) In the case of all other entities, including 3 corporations described in section 422.36, subsection 5 , and all 4 other entities required to file an information return under 5 section 422.15, subsection 2 , the entity’s Iowa net income 6 after the application of the Iowa business activity ratio, 7 if applicable, multiplied by the top income tax rate imposed 8 under section 422.5A 422.5 for the tax year, less any Iowa tax 9 credits available to the entity. 10 Sec. 20. Section 422.5, subsection 1, paragraph a, Code 11 2022, is amended to read as follows: 12 a. A tax is imposed upon every resident and nonresident 13 of the state which tax shall be levied, collected, and paid 14 annually upon and with respect to the entire taxable income 15 as defined in this subchapter at rates as provided in section 16 422.5A a rate of four percent . 17 Sec. 21. Section 422.16B, subsection 2, paragraph a, Code 18 2022, is amended to read as follows: 19 a. (1) A pass-through entity shall file a composite return 20 on behalf of all nonresident members and shall report and pay 21 the income or franchise tax imposed under this chapter at the 22 maximum state income or franchise tax rate applicable to the 23 member under section 422.5A 422.5 , 422.33 , or 422.63 on the 24 nonresident members’ distributive shares of the income from the 25 pass-through entity. 26 (2) The tax rate applicable to a tiered pass-through entity 27 shall be the maximum state income tax rate under section 422.5A 28 422.5 . 29 Sec. 22. Section 422.25A, subsection 5, paragraph c, 30 subparagraphs (3), (4), and (5), Code 2022, are amended to read 31 as follows: 32 (3) Determine the total distributive share of all final 33 federal partnership adjustments and positive reallocation 34 adjustments as modified by this title that are reported to 35 -13- LSB 5332XL (7) 89 jm/jh 13/ 29

S.F. _____ H.F. _____ nonresident individual partners and nonresident fiduciary 1 partners and allocate and apportion such adjustments as 2 provided in section 422.33 at the partnership or tiered 3 partner level, and multiply the resulting amount by the maximum 4 individual income tax rate pursuant to section 422.5A 422.5 for 5 the reviewed year. 6 (4) For the total distributive share of all final federal 7 partnership adjustments and positive reallocation adjustments 8 as modified by this title that are reported to tiered partners: 9 (a) Determine the amount of such adjustments which are of a 10 type that would be subject to sourcing to Iowa under section 11 422.8, subsection 2 , paragraph “a” , as a nonresident, and then 12 determine the portion of this amount that would be sourced to 13 Iowa under those provisions as if the tiered partner were a 14 nonresident. 15 (b) Determine the amount of such adjustments which are of 16 a type that would not be subject to sourcing to Iowa under 17 section 422.8, subsection 2 , paragraph “a” , as a nonresident. 18 (c) Determine the portion of the amount in subparagraph 19 division (b) that can be established, as prescribed by the 20 department by rule, to be properly allocable to indirect 21 partners that are nonresident partners or other partners not 22 subject to tax on the adjustments. 23 (d) Multiply the total of the amounts determined in 24 subparagraph divisions (a) and (b), reduced by any amount 25 determined in subparagraph division (c), by the highest 26 individual income tax rate pursuant to section 422.5A 422.5 for 27 the reviewed year. 28 (5) For the total distributive share of all final federal 29 partnership adjustments and positive reallocation adjustments 30 as modified by this title that are reported to resident 31 individual partners and resident fiduciary partners, multiply 32 that amount by the highest individual income tax rate pursuant 33 to section 422.5A 422.5 for the reviewed year. 34 Sec. 23. EFFECTIVE DATE. This division of this Act takes 35 -14- LSB 5332XL (7) 89 jm/jh 14/ 29

S.F. _____ H.F. _____ effect January 1, 2026. 1 Sec. 24. APPLICABILITY. This division of this Act applies 2 to tax years beginning on or after January 1, 2026. 3 DIVISION VI 4 CORPORATE INCOME TAX RATES —— ADJUSTMENTS 5 Sec. 25. Section 422.33, subsection 1, Code 2022, is amended 6 to read as follows: 7 1. a. A tax is imposed annually upon each corporation doing 8 business in this state, or deriving income from sources within 9 this state, in an amount computed by applying the following 10 rates of taxation to the net income received by the corporation 11 during the income year: 12 a. (1) On the first twenty-five thousand dollars of taxable 13 income, or any part thereof, the rate of six percent for tax 14 years beginning prior to January 1, 2021, and the rate of 15 five and one-half percent for tax years beginning on or after 16 January 1, 2021. 17 b. (2) On taxable income between twenty-five thousand 18 dollars and one hundred thousand dollars or any part thereof, 19 the rate of eight percent for tax years beginning prior to 20 January 1, 2021, and the rate of five and one-half percent for 21 tax years beginning on or after January 1, 2021. 22 c. (3) On taxable income between one hundred thousand 23 dollars and two hundred fifty thousand dollars or any part 24 thereof, the rate of ten percent for tax years beginning prior 25 to January 1, 2021, and the rate of nine percent for tax years 26 beginning on or after January 1, 2021. 27 d. (4) On taxable income of two hundred fifty thousand 28 dollars or more, the rate of twelve percent for tax years 29 beginning prior to January 1, 2021, and the rate of nine 30 and eight-tenths percent for tax years beginning on or after 31 January 1, 2021. 32 b. (1) (a) Notwithstanding paragraph “a” , the department 33 of management and the department of revenue shall determine 34 corporate income tax rates as provided in this paragraph. A 35 -15- LSB 5332XL (7) 89 jm/jh 15/ 29

S.F. _____ H.F. _____ tax rate in this subsection shall remain in effect until the 1 tax rate is adjusted pursuant to this paragraph. 2 (b) By November 1, 2022, and by November 1 each year 3 thereafter, the department of management shall determine the 4 net corporate income tax receipts for the fiscal year preceding 5 the determination date. If net corporate income tax receipts 6 for the preceding fiscal year exceed seven hundred million 7 dollars, the department of revenue shall adjust and apply new 8 corporate income tax rates as provided in subparagraph (2). 9 (2) (a) If a determination has been made that net 10 corporate income tax receipts for the preceding fiscal year 11 exceeded seven hundred million dollars, the department of 12 revenue shall adjust the tax rates specified in paragraph “a” , 13 subparagraphs (3) and (4), and apply the adjusted rates for tax 14 years beginning on or after the next January 1 following the 15 determination date. 16 (b) (i) The tax rates subject to adjustment shall be 17 adjusted in such a way that when combined with all the other 18 rates specified in paragraph “a” , the tax rates would have 19 generated net corporate income tax receipts that equal seven 20 hundred million dollars in the preceding fiscal year. 21 (ii) When adjusting the tax rates, the tax rates shall be 22 adjusted as follows: 23 (A) The tax rate in effect that corresponds with the 24 specified tax rate in paragraph “a” , subparagraph (4), 25 shall first be adjusted but not below the tax rate in effect 26 that corresponds with the specified rate in paragraph “a” , 27 subparagraph (3). 28 (B) If after the adjustment in subparagraph part (A) is 29 made, and an additional adjustment is necessary, the tax rates 30 that correspond with the rates specified in paragraph “a” , 31 subparagraphs (3) and (4), shall be adjusted on an equal basis. 32 (iii) The tax rates adjusted pursuant to this paragraph 33 shall not be adjusted below five and one-half percent. 34 (iv) The tax rates, when adjusted, shall be rounded down to 35 -16- LSB 5332XL (7) 89 jm/jh 16/ 29

S.F. _____ H.F. _____ the nearest one-tenth of one percent. 1 (3) If a tax rate is adjusted pursuant to this paragraph, 2 the director of revenue shall cause an advisory notice 3 containing the new corporate tax rates to be published in the 4 Iowa administrative bulletin and on the internet site of the 5 department of revenue. The calculation and publication of the 6 adjusted tax rate by the director of revenue is exempt from 7 chapter 17A, and shall be submitted for publication by the 8 first December 31 following the determination date to adjust 9 the tax rates. 10 DIVISION VII 11 CORPORATE INCOME TAX —— FLAT RATE 12 Sec. 26. Section 422.33, subsection 1, Code 2022, is amended 13 by striking the subsection and inserting in lieu thereof the 14 following: 15 1. A tax is imposed annually upon each corporation doing 16 business in this state, or deriving income from sources within 17 this state, in an amount computed by applying the rate of 18 five and one-half percent to the net income received by the 19 corporation during the income year. 20 Sec. 27. CONTINGENT EFFECTIVE DATE. This division of 21 this Act takes effect on the first January 1 after each rate 22 of taxation on the net income received by a corporation is 23 equalized to equal five and one-half percent pursuant to 24 section 422.33, subsection 1, paragraph “b”, as amended by this 25 Act. The director of revenue shall inform the Code editor upon 26 the occurence of this contingency. 27 Sec. 28. APPLICABILITY. This division of this Act applies 28 to tax years beginning on or after the effective date of this 29 division of this Act. 30 DIVISION VIII 31 RETIREMENT INCOME 32 Sec. 29. Section 8.57E, subsection 2, Code 2022, is amended 33 to read as follows: 34 2. Moneys in the taxpayer relief fund shall only be used 35 -17- LSB 5332XL (7) 89 jm/jh 17/ 29

S.F. _____ H.F. _____ pursuant to appropriations or transfers made by the general 1 assembly for tax relief , including but not limited to increases 2 in the general retirement income exclusion under section 422.7, 3 subsection 31 , or reductions in income tax rates. 4 Sec. 30. Section 422.5, subsection 3, paragraph a, Code 5 2022, is amended to read as follows: 6 a. The tax shall not be imposed on a resident or nonresident 7 whose net income, as defined in section 422.7 , is thirteen 8 thousand five hundred dollars or less in the case of married 9 persons filing jointly or filing separately on a combined 10 return, heads of household, and surviving spouses or nine 11 thousand dollars or less in the case of all other persons; but 12 in the event that the payment of tax under this subchapter 13 would reduce the net income to less than thirteen thousand five 14 hundred dollars or nine thousand dollars as applicable, then 15 the tax shall be reduced to that amount which would result 16 in allowing the taxpayer to retain a net income of thirteen 17 thousand five hundred dollars or nine thousand dollars as 18 applicable. The preceding sentence does not apply to estates 19 or trusts. For the purpose of this subsection , the entire net 20 income, including any part of the net income not allocated 21 to Iowa, shall be taken into account. For purposes of this 22 subsection , net income includes all amounts of pensions or 23 other retirement income, except for military retirement pay 24 excluded under section 422.7, subsection 31A , paragraph “a” , or 25 section 422.7, subsection 31B , paragraph “a” , received from any 26 source which is not taxable under this subchapter as a result 27 of the government pension exclusions in section 422.7 , or any 28 other state law. If the combined net income of a husband and 29 wife exceeds thirteen thousand five hundred dollars, neither 30 of them shall receive the benefit of this subsection , and it 31 is immaterial whether they file a joint return or separate 32 returns. However, if a husband and wife file separate returns 33 and have a combined net income of thirteen thousand five 34 hundred dollars or less, neither spouse shall receive the 35 -18- LSB 5332XL (7) 89 jm/jh 18/ 29

S.F. _____ H.F. _____ benefit of this paragraph, if one spouse has a net operating 1 loss and elects to carry back or carry forward the loss as 2 provided in section 422.9, subsection 3 . A person who is 3 claimed as a dependent by another person as defined in section 4 422.12 shall not receive the benefit of this subsection if 5 the person claiming the dependent has net income exceeding 6 thirteen thousand five hundred dollars or nine thousand dollars 7 as applicable or the person claiming the dependent and the 8 person’s spouse have combined net income exceeding thirteen 9 thousand five hundred dollars or nine thousand dollars as 10 applicable. 11 Sec. 31. Section 422.5, subsection 3B, paragraph a, Code 12 2022, is amended to read as follows: 13 a. The tax shall not be imposed on a resident or nonresident 14 who is at least sixty-five years old on December 31 of 15 the tax year and whose net income, as defined in section 16 422.7 , is thirty-two thousand dollars or less in the case 17 of married persons filing jointly or filing separately on a 18 combined return, heads of household, and surviving spouses or 19 twenty-four thousand dollars or less in the case of all other 20 persons; but in the event that the payment of tax under this 21 subchapter would reduce the net income to less than thirty-two 22 thousand dollars or twenty-four thousand dollars as applicable, 23 then the tax shall be reduced to that amount which would result 24 in allowing the taxpayer to retain a net income of thirty-two 25 thousand dollars or twenty-four thousand dollars as applicable. 26 The preceding sentence does not apply to estates or trusts. 27 For the purpose of this subsection , the entire net income, 28 including any part of the net income not allocated to Iowa, 29 shall be taken into account. For purposes of this subsection , 30 net income includes all amounts of pensions or other retirement 31 income, except for military retirement pay excluded under 32 section 422.7, subsection 31A , paragraph “a” , or section 422.7, 33 subsection 31B , paragraph “a” , received from any source which is 34 not taxable under this subchapter as a result of the government 35 -19- LSB 5332XL (7) 89 jm/jh 19/ 29

S.F. _____ H.F. _____ pension exclusions in section 422.7 , or any other state law. 1 If the combined net income of a husband and wife exceeds 2 thirty-two thousand dollars, neither of them shall receive the 3 benefit of this subsection , and it is immaterial whether they 4 file a joint return or separate returns. However, if a husband 5 and wife file separate returns and have a combined net income 6 of thirty-two thousand dollars or less, neither spouse shall 7 receive the benefit of this paragraph, if one spouse has a net 8 operating loss and elects to carry back or carry forward the 9 loss as provided in section 422.9, subsection 3 . A person 10 who is claimed as a dependent by another person as defined in 11 section 422.12 shall not receive the benefit of this subsection 12 if the person claiming the dependent has net income exceeding 13 thirty-two thousand dollars or twenty-four thousand dollars 14 as applicable or the person claiming the dependent and the 15 person’s spouse have combined net income exceeding thirty-two 16 thousand dollars or twenty-four thousand dollars as applicable. 17 Sec. 32. Section 422.7, subsection 31, Code 2022, is amended 18 to read as follows: 19 31. a. For a person who is disabled, or is fifty-five years 20 of age or older, or is the surviving spouse of an individual or 21 a survivor having an insurable interest in an individual who 22 would have qualified for the exemption under this subsection 23 for the tax year, subtract Subtract , to the extent included, 24 the total amount of received from a governmental or other 25 pension or retirement pay plan , including , but not limited 26 to, defined benefit or defined contribution plans, annuities, 27 individual retirement accounts, plans maintained or contributed 28 to by an employer, or maintained or contributed to by a 29 self-employed person as an employer, and deferred compensation 30 plans or any earnings attributable to the deferred compensation 31 plans , up to a maximum of six thousand dollars for a person, 32 other than a husband or wife, who files a separate state income 33 tax return and up to a maximum of twelve thousand dollars 34 for a husband and wife who file a joint state income tax 35 -20- LSB 5332XL (7) 89 jm/jh 20/ 29

S.F. _____ H.F. _____ return. However, a surviving spouse who is not disabled or 1 fifty-five years of age or older can only exclude the amount 2 of pension or retirement pay received as a result of the death 3 of the other spouse. A husband and wife filing separate state 4 income tax returns or separately on a combined state return 5 are allowed a combined maximum exclusion under this subsection 6 of up to twelve thousand dollars. The twelve thousand dollar 7 exclusion shall be allocated to the husband or wife in the 8 proportion that each spouse’s respective pension and retirement 9 pay received bears to total combined pension and retirement 10 pay received received by a person who is disabled, or is 11 fifty-five years of age or older, or is the surviving spouse of 12 an individual or is a survivor having an insurable interest in 13 an individual who would have qualified for the exemption under 14 this subsection for the tax year . 15 b. Married taxpayers who file separate state income tax 16 returns shall allocate their combined annual exclusion amount 17 to each spouse in the proportion that each spouse’s respective 18 income received from a pension or retirement plan bears to the 19 total combined pension or retirement pay received. 20 c. A taxpayer who is not disabled or fifty-five years of 21 age or older and who receives pension or retirement pay as a 22 surviving spouse or as a survivor with an insurable interest 23 in an individual who would have qualified for the exemption 24 for the tax year may only exclude the amount received from a 25 pension or retirement plan in the tax year as a result of the 26 death of the decedent. 27 Sec. 33. EFFECTIVE DATE. This division of this Act takes 28 effect January 1, 2023. 29 Sec. 34. APPLICABILITY. This division of this Act applies 30 to tax years beginning on or after January 1, 2023. 31 EXPLANATION 32 The inclusion of this explanation does not constitute agreement with 33 the explanation’s substance by the members of the general assembly. 34 This bill relates to state revenue and finance by modifying 35 -21- LSB 5332XL (7) 89 jm/jh 21/ 29

S.F. _____ H.F. _____ individual and corporate income taxes. 1 DIVISION I —— SALE OF CERTAIN QUALIFIED STOCK —— NET 2 CAPITAL GAIN EXCLUSION. The bill grants an employee-owner one 3 irrevocable lifetime election to exclude from state individual 4 income tax the net capital gain from the state of the capital 5 stock on one qualified corporation. The election applies to 6 all subsequent sales or exchanges of capital stock. 7 The bill phases in over a three-year period the complete 8 exclusion from the individual income tax the net capital gain 9 from the sale of capital stock on one qualified corporation. 10 The percentage of the capital gain that is excluded for tax 11 years beginning in 2023, 2024, and 2025 and beyond is 33 12 percent, 66 percent, and 100 percent, respectively. Several 13 requirements must be met for the capital stock to qualify 14 as capital stock of a qualified corporation. The qualified 15 corporation must have employed individuals in this state for 16 at least 10 years. The qualified corporation must have had at 17 least five shareholders for the 10 years prior to the first 18 sale or exchange pursuant to the bill, and the corporation must 19 have had at least two shareholders or groups of shareholders 20 who are not related for the 10 years prior to the sale or 21 exchange. The bill requires the capital stock to be common or 22 preferred stock, and may be either voting or nonvoting, but 23 does not include warrants, stock options, or debt securities. 24 The bill provides that the election applies to transfers of 25 the capital stock by inter vivos gift from the employee-owner 26 to a spouse, or to a trust for the benefit of the 27 employee-owner’s spouse. The election will apply to a spouse 28 only if the spouse was married to the employee-owner on the 29 date of the sale or the date of the employee-owner’s death. 30 If, after making a valid inter vivos gift of stock that meets 31 all the requirements for an election, an employee-owner dies 32 without making an election, the surviving spouse, or if there 33 is no surviving spouse, the personal representative of the 34 employee-owner’s estate, may make the election. 35 -22- LSB 5332XL (7) 89 jm/jh 22/ 29

S.F. _____ H.F. _____ An election under the bill is made on a form prescribed by 1 the department of revenue and included with the taxpayer’s 2 state income tax return for the taxable year in which the 3 election is made. 4 The division takes effect January 1, 2023, and applies to tax 5 years beginning on or after that date. 6 DIVISION II —— RETIRED FARMER LEASE INCOME EXCLUSION. 7 Commencing with tax years beginning on or after January 1, 8 2023, the bill excludes from the individual income tax a 9 retired farmer’s total net income received pursuant to a 10 farm tenancy agreement covering real property held by the 11 retired farmer for 10 or more years, if the farmer materially 12 participated in a farming business for 10 or more years. 13 Net income from a farm tenancy agreement earned by an 14 entity taxed as a partnership for federal tax purposes, an S 15 corporation, or a trust or estate is not eligible for the lease 16 income exclusion, even if the net income passes through to a 17 retired farmer. 18 A retired farmer is not eligible for the lease income 19 exclusion unless the farmer is at least 55 years of age and no 20 longer materially participating in farming. 21 A retired farmer who elects to claim the lease income 22 exclusion is not eligible, in the tax year the election is made 23 or in succeeding tax years, to claim the capital gain exclusion 24 under Code section 422.7(21), as amended by another division of 25 the bill, or the beginning farmer tax credit. 26 The division takes effect January 1, 2023, and applies to tax 27 years beginning on or after that date. 28 DIVISION III —— RETIRED FARMER CAPITAL GAIN EXCLUSION. The 29 bill modifies the individual income tax capital gain exclusion 30 for the sale of real property used in a farming business which 31 otherwise would have gone into effect in tax year 2023, which 32 was enacted in 2018 Iowa Acts, chapter 1161, section 113, 33 and later modified in 2019 Iowa Acts, chapter 162. The bill 34 repeals both 2018 Iowa Acts, chapter 1161, section 113, and 35 -23- LSB 5332XL (7) 89 jm/jh 23/ 29

S.F. _____ H.F. _____ 2019 Iowa Acts, chapter 162, and creates a new capital gain 1 exclusion provision based upon the 2019 Iowa Acts, chapter 2 162 provisions, effective for tax years beginning on or after 3 January 1, 2023. 4 Under the provisions in 2019 Iowa Acts, chapter 162, section 5 1, which otherwise would have gone into effect during the 2023 6 tax year, a taxpayer who materially participates in a farming 7 business for at least 10 years and held real property used 8 in such a business for at least 10 years, may make a single 9 lifetime exclusion election from the individual income tax of 10 the capital gain of the sale of such property. 11 The bill modifies the term “materially participated” in a 12 farming business to include a retired farmer if the retired 13 farmer materially participated in a farming business for 10 14 years or more, in the aggregate, prior to making the election 15 to exclude the capital gain of the sale of real property used 16 in a farming business. 17 In addition to a single lifetime exclusion of the capital 18 gain from the sale of real property used in a farming business, 19 the bill also allows a retired farmer to make a single lifetime 20 exclusion of the net capital gain from the sale of cattle 21 or horses if held by the retired farmer for breeding, draft, 22 dairy, or sporting purposes for more than 24 months, and 23 only if the retired farmer materially participated in the 24 farming business for five of the eight years preceding the 25 retired farmer’s retirement or disability, and who sold all 26 or substantially all of the retired farmer’s interest in the 27 farming business by the time the election to exclude capital 28 gain of the sale of livestock from the individual income tax 29 is made. 30 Additionally, the bill allows a retired farmer to make a 31 single lifetime exclusion of the net capital gain from the 32 sale of breeding livestock, other than cattle and horses, if 33 the livestock is held by the retired farmer for more than 12 34 months, and only if the retired farmer materially participated 35 -24- LSB 5332XL (7) 89 jm/jh 24/ 29

S.F. _____ H.F. _____ in the farming business for five of the eight years preceding 1 the retired farmer’s retirement or disability, and who sold all 2 or substantially all of the retired farmer’s interest in the 3 farming business by the time the election to exclude capital 4 gain of the sale of livestock from the individual income tax 5 is made. 6 Under the bill, a retired farmer is not eligible for the 7 capital gain exclusion if the retired farmer claims the 8 beginning farmer tax credit in the same tax year. A retired 9 farmer electing the capital gain exclusion is not eligible to 10 elect to exclude retired farmer lease income in the same tax 11 year or any succeeding tax year. 12 The division takes effect January 1, 2023, and applies to 13 sales consummated on or after that date. 14 For sales consummated prior to January 1, 2023, the existing 15 law in Code section 422.7(21) shall govern. 16 DIVISION IV —— INDIVIDUAL INCOME TAX —— TAX YEARS 2023-2025. 17 The bill repeals the individual income tax rates and brackets 18 described in 2018 Iowa Acts, chapter 1161, section 107, which 19 otherwise would have gone into effect January 1, 2023, and 20 strikes and replaces the individual income tax rates and 21 brackets for the tax year beginning January 1, 2023, in Code 22 section 422.5A. The bill reduces individual income tax rates 23 beginning with the 2023 tax year, and reduces the number of 24 individual income tax brackets beginning with the 2024 tax 25 year. The modified individual income tax rates and brackets 26 are as follows: 27 For the 2023 tax year: 28 Married filing jointly 29 Income over: But not over: Tax Rate: 30 1) $0 $12,000 4.40% 31 2) $12,000 $60,000 4.82% 32 3) $60,000 $150,000 5.70% 33 4) $150,000 6.00% 34 All other filers other than married filing jointly 35 -25- LSB 5332XL (7) 89 jm/jh 25/ 29

S.F. _____ H.F. _____ Income over: But not over: Tax Rate: 1 1) $0 $6,000 4.40% 2 2) $6,000 $30,000 4.82% 3 3) $30,000 $75,000 5.70% 4 4) $75,000 6.00% 5 For the 2024 tax year: 6 Married filing jointly 7 Income over: But not over: Tax Rate: 8 1) $0 $12,000 4.40% 9 2) $12,000 $60,000 4.82% 10 3) $60,000 5.70% 11 All other filers other than married filing jointly 12 Income over: But not over: Tax Rate: 13 1) $0 $6,000 4.40% 14 2) $6,000 $30,000 4.82% 15 3) $30,000 5.70% 16 For the 2025 tax year: 17 Married filing jointly 18 Income over: But not over: Tax Rate: 19 1) $0 $12,000 4.40% 20 2) $12,000 4.82% 21 All other filers other than married filing jointly 22 Income over: But not over: Tax Rate: 23 1) $0 $6,000 4.40% 24 2) $6,000 4.82% 25 Currently, an alternate income tax calculation exists 26 in Code section 422.5. The alternate income tax is an 27 alternate method of calculating income tax liability in lieu 28 of the regular income tax calculation. The alternate method 29 multiplies the taxpayer’s taxable income above the income tax 30 filing thresholds in Code section 422.5(3)(b) or 422.5(3B)(b) 31 by the highest existing individual income tax rate until 32 the taxpayer’s tax liability is equal to the tax liability 33 that would have been calculated under the regular income tax 34 calculation method, then after such point the regular income 35 -26- LSB 5332XL (7) 89 jm/jh 26/ 29

S.F. _____ H.F. _____ tax calculation with the regular income tax rates are used. 1 The bill phases in changes to the alternate tax rate until the 2 rate is set at 3.50 percent commencing with tax years beginning 3 on or after January 1, 2026. 4 The division takes effect January 1, 2023, and applies to tax 5 years beginning on or after that date. 6 DIVISION V —— INDIVIDUAL INCOME TAX —— FLAT RATE. Commencing 7 with tax years beginning on or after January 1, 2026, the 8 bill establishes a flat 4.00 percent individual income tax 9 rate on all taxable income and moves the individual income 10 tax rate from Code section 422.5A to Code section 422.5. The 11 division takes effect January 1, 2026, and applies to tax years 12 beginning on or after that date. 13 DIVISION VI —— CORPORATE INCOME TAX RATES —— ADJUSTMENTS. 14 The bill establishes a procedure where the corporate income tax 15 rates may be modified commencing with tax years beginning on or 16 after January 1, 2023. 17 By November 1, 2022, and by November 1 each year thereafter, 18 the department of management shall determine the net corporate 19 income tax receipts for the fiscal year preceding the 20 determination date. If net corporate income tax receipts for 21 the preceding fiscal year exceed $700 million, the department 22 of revenue shall adjust and apply new corporate income tax 23 rates. 24 Under the bill, if a determination has been made that net 25 corporate income tax receipts for the preceding fiscal year 26 exceeded $700 million, the department of revenue shall adjust 27 the two highest current corporate tax rates and apply the 28 adjusted rates for tax years beginning on or after the next 29 January 1 following the determination date. 30 The bill requires the tax rates subject to adjustment to be 31 adjusted in such a way that when combined with all the rates 32 specified in Code section 422.33(1), the tax rates would have 33 generated net corporate income tax receipts that equal $700 34 million. The bill prohibits the tax rates to be adjusted below 35 -27- LSB 5332XL (7) 89 jm/jh 27/ 29

S.F. _____ H.F. _____ 5.5 percent. 1 If a tax rate is adjusted, the bill requires the director 2 of revenue to cause an advisory notice containing the new 3 corporate tax rates to be published in the Iowa administrative 4 bulletin and on the internet site of the department of revenue. 5 The calculation and publication of the adjusted tax rate by the 6 director of revenue is exempt from Code chapter 17A, and shall 7 be submitted for publication by the first December 31 following 8 the determination date to adjust the tax rates. 9 DIVISION VII —— CORPORATE INCOME TAX —— FLAT TAX. When 10 the corporate income tax rates are adjusted to a point where 11 all the rates equal 5.5 percent, the bill amends Code section 12 422.33(1) to codify that the corporate tax rate at 5.5 percent. 13 The division contingently takes effect the first January 1 14 after such an occurrence, and applies to tax years beginning 15 on or after that date. 16 DIVISION VIII —— RETIREMENT INCOME EXCLUSION. Under current 17 law, a taxpayer who is disabled, who is at least 55 years of 18 age, or who is the surviving spouse or other specified survivor 19 of that qualifying taxpayer, may exclude a maximum of $6,000 of 20 other retirement income ($12,000 for married persons). 21 Commencing with tax years beginning January 1, 2023, the 22 bill excludes retirement income from the computation of net 23 income for purposes of the individual income tax. In order 24 to be eligible for the retirement income exclusion, a person 25 must be disabled, at least 55 years of age, or be the surviving 26 spouse of an individual or be a survivor having an insurable 27 interest in an individual who would have qualified for the 28 retirement income exclusion. 29 The bill does not change current law allowing a taxpayer 30 to exclude all retirement pay, including certain survivor 31 benefits, received from the federal government for military 32 service performed in the armed forces, the armed forces 33 military reserve, or national guard. 34 The bill strikes a provision permitting moneys in the 35 -28- LSB 5332XL (7) 89 jm/jh 28/ 29

S.F. _____ H.F. _____ taxpayer relief fund to be used for increases in the general 1 retirement income exclusions in Code section 422.7(31) because 2 the bill provides for the complete exclusion of such retirement 3 income. 4 The bill also excludes this retirement income from the 5 calculation of net income for purposes of determining whether 6 or not a taxpayer’s net income exceeds the amount at which the 7 individual income tax will not be imposed pursuant to Code 8 section 422.5(3) or 422.5(3B), and for which an individual 9 income tax return is not required to be filed, and for purposes 10 of calculating the alternate tax in Code section 422.5, and 11 further provides that any retirement income excluded from 12 the individual income tax will not be added back to these 13 calculations for tax years beginning in 2023 or later. 14 The division takes effect January 1, 2023, and applies to tax 15 years beginning on or after that date. 16 -29- LSB 5332XL (7) 89 jm/jh 29/ 29