HF 94 (LSB 2096YH (2) 91)

HOUSE FILE 94

BY  JONES

A BILL FOR

An Act relating to individual income taxation by exempting certain amounts received from nonqualified deferred compensation plans and including retroactive applicability provisions.
BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA:

    Section 1.  Section 422.7, Code 2025, is amended by adding the following new subsection:
   NEW SUBSECTION.  45.  a.  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 any of the following:
   (1)  Disabled.
   (2)  Fifty-five years of age or older.
   (3)  The surviving spouse of an individual or a survivor having an insurable interest in an individual who would have qualified for the exemption under this subsection for the tax year.
   b.  Married taxpayers who file separate state income tax returns shall allocate their combined annual exclusion amount to each spouse in the proportion that each spouse’s respective income received from a nonqualified deferred compensation plan bears to the total combined pension or retirement pay received.
    Sec. 2.  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.
   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, 2025, for tax years beginning on or after that date.