HF 2638 (LSB 5596HV (2) 90)

HOUSE FILE 2638

BY  COMMITTEE ON WAYS AND MEANS

(SUCCESSOR TO HF 2105)

A BILL FOR

An Act excluding nonqualified deferred compensation income from the individual income tax, and including retroactive applicability provisions.
BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA:

    Section 1.  Section 422.7, subsection 19, paragraph a, Code 2024, is amended to read as follows:
   a.  (1)  Subtract, to the extent included, the total amount received from a governmental or other pension or retirement plan, including defined benefit or defined contribution plans, annuities, individual retirement accounts, plans maintained or contributed to by an employer, or maintained or contributed to by a self-employed person as an employer, and deferred compensation plans or any earnings attributable to the deferred compensation plans received by a person who is disabled, or is fifty-five years of age or older, or is the surviving spouse of an individual or is a survivor having an insurable interest in an individual who would have qualified for the exemption under this subsection subparagraph for the tax year.
   (2)  Subtract, to the extent included, up to five hundred thousand dollars of a nonqualified deferred compensation plan or any earnings attributable to the nonqualified deferred compensation plan received by a person who is disabled, or is fifty-five years of age or older, or is the surviving spouse of an individual or is a survivor having an insurable interest in an individual who would have qualified for the exemption under this subparagraph for the tax year.
    Sec. 2.  RETROACTIVE APPLICABILITY.  This Act applies retroactively to January 1, 2024, for tax years beginning on or after that date.
EXPLANATION
The inclusion of this explanation does not constitute agreement with
the explanation’s substance by the members of the general assembly.
   Under current law, a taxpayer may exclude retirement income from the computation of net income for purposes of the individual income tax. In order to be eligible for the retirement income exclusion, a person must be disabled, at least 55 years of age, or be the surviving spouse of an individual or be a survivor having an insurable interest in an individual who would have qualified for the retirement income exclusion.
   This bill excludes up to $500,000 of nonqualified deferred compensation plan income from the computation of net income for purposes of the individual income tax under similar circumstances as the retirement income exclusion. In order to be eligible for the nonqualified deferred compensation plan income exclusion, the taxpayer must be disabled, at least 55 years of age, or be the surviving spouse of an individual or be a survivor having an insurable interest in an individual who would have qualified for the income exclusion.
   A nonqualified deferred compensation plan is deferred compensation with no federal legal deferral limit that is subject to tax at a later date, and is usually made available to select employees.
   The bill applies retroactively to January 1, 2024, for tax years beginning on or after that date.