HF 566 (LSB 2504YH (3) 91)

HOUSE FILE 566

BY  WHEELER

A BILL FOR

An Act modifying individual income tax rates and providing tax credits for certain married persons filing a joint return, and including effective date and retroactive applicability provisions.
BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA:

    Section 1.  Section 421.27, subsection 9, paragraph a, subparagraph (3), Code 2025, is amended to read as follows:
   (3)  In the case of all other entities, including corporations described in section 422.36, subsection 5, and all other entities required to file an information return under section 422.15, subsection 2, the entity’s Iowa net income after the application of the Iowa business activity ratio, if applicable, multiplied by the highest income tax rate imposed under section 422.5 for the tax year, less any Iowa tax credits available to the entity.
    Sec. 2.  Section 422.5, subsection 1, paragraph a, Code 2025, is amended to read as follows:
   a.  A tax is imposed upon every resident and nonresident of the state which tax shall be levied, collected, and paid annually upon and with respect to the entire taxable income as defined in this subchapter at a rate of three and eight-tenths percent. the following rates:
   (1)  In the case of married persons filing jointly with five or more dependents under the age of eighteen, zero percent.
   (2)  In the case of married persons filing jointly for the first or second time in their lifetimes, zero percent.
   (3)  In the case of any other taxpayer other than described in subparagraphs (1) and (2), three and eight-tenths percent.
    Sec. 3.  NEW SECTION.  422.10C  Additional dependent tax credit.
   1.  For married persons filing a joint return the taxes imposed under this subchapter less the credits allowed under section 422.12 shall be reduced by an additional dependent tax credit equal to the product of the number of dependents exceeding five but not more than ten that are under the age of eighteen multiplied by one thousand dollars.
   2.  Any credit in excess of the tax liability is refundable. In lieu of claiming a refund, the taxpayer may elect to have the overpayment shown on the taxpayer’s final, completed return credited to the tax liability for the following five years until depleted, whichever is earlier.
   3.  The director of revenue shall adopt rules to implement this section.
    Sec. 4.  Section 422.16, subsection 2, paragraph e, Code 2025, is amended to read as follows:
   e.  For the purposes of this subsection, state income tax shall be withheld at the highest rate described in section 422.5 from supplemental wages of an employee in those circumstances in which the employer treats the supplemental wages as wholly separate from regular wages for purposes of withholding and federal income tax is withheld from the supplemental wages under section 3402(g) of the Internal Revenue Code.
    Sec. 5.  Section 422.16B, subsection 2, paragraph a, subparagraph (2), Code 2025, is amended to read as follows:
   (2)  The tax rate applicable to a tiered pass-through entity shall be the highest state income tax rate under section 422.5.
    Sec. 6.  Section 422.16C, subsection 4, paragraph a, Code 2025, is amended to read as follows:
   a.  A taxpayer making an election under this section shall be subject to tax in an amount equal to the maximum rate under section 422.5, imposed against the taxable income of the taxpayer for the taxable year properly determined under this chapter and allocated and apportioned to the state under the rules adopted by the department. The tax shall be due with the taxpayer’s return required under this chapter.
    Sec. 7.  Section 422.16C, subsection 5, paragraph a, subparagraph (2), Code 2025, is amended to read as follows:
   (2)  The difference between one hundred percent and the highest individual income tax rate in effect for the tax year.
    Sec. 8.  EFFECTIVE DATE.  This Act, being deemed of immediate importance, takes effect upon enactment.
    Sec. 9.  RETROACTIVE APPLICABILITY.  This Act applies retroactively to January 1, 2025, 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.
   This bill modifies individual income tax rates and provides tax credits for certain married persons filing a joint return.
   The bill decreases the income tax rate on taxable income for married persons filing jointly from 3.8 percent to 0 percent, if such married persons have 5 or more dependents under the age of 18. The bill decreases the income tax rate on taxable income for married persons filing jointly from 3.8 percent to 0 percent, if such married persons are filing jointly for the first or second time in their lifetimes.
   The bill also creates an additional dependent credit for married persons filing a joint return equal to the product of the number of dependents exceeding 5 but not more than 10 that are under the age of 18 multiplied by $1,000.
   Any credit in excess of the tax liability is refundable. In lieu of claiming a refund, the taxpayer may elect to have the overpayment shown on the taxpayer’s final, completed return credited to the tax liability for the following five years until depleted, whichever is earlier. 
   The bill takes effect upon enactment and applies retroactively to tax years beginning on or after January 1, 2025.