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Senate Study Bill 1186 - IntroducedA Bill ForAn Act 1providing an exemption from the computation of the
2individual income tax of certain amounts of retirement
3income and including retroactive applicability provisions.
4BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA:
1 Section 1. Section 422.5, subsection 3, paragraph a, Code
22019, is amended to read as follows:
3a. The tax shall not be imposed on a resident or nonresident
4whose net income, as defined in section 422.7, is thirteen
5thousand five hundred dollars or less in the case of married
6persons filing jointly or filing separately on a combined
7return, heads of household, and surviving spouses or nine
8thousand dollars or less in the case of all other persons;
9but in the event that the payment of tax under this division
10would reduce the net income to less than thirteen thousand five
11hundred dollars or nine thousand dollars as applicable, then
12the tax shall be reduced to that amount which would result
13in allowing the taxpayer to retain a net income of thirteen
14thousand five hundred dollars or nine thousand dollars as
15applicable. The preceding sentence does not apply to estates
16or trusts. For the purpose of this subsection, the entire net
17income, including any part of the net income not allocated
18to Iowa, shall be taken into account. For purposes of this
19subsection, net income includes all amounts of pensions or
20other retirement income, except for military retirement pay
21excluded under section 422.7, subsection 31A, paragraph “a”,
22or section 422.7, subsection 31B, paragraph “a”, received from
23any source which is not taxable under this division as a result
24of the government pension exclusions in section 422.7, or any
25other state law. If the combined net income of a husband and
26wife exceeds thirteen thousand five hundred dollars, neither
27of them shall receive the benefit of this subsection, and it
28is immaterial whether they file a joint return or separate
29returns. However, if a husband and wife file separate returns
30and have a combined net income of thirteen thousand five
31hundred dollars or less, neither spouse shall receive the
32benefit of this paragraph, if one spouse has a net operating
33loss and elects to carry back or carry forward the loss as
34provided in section 422.9, subsection 3. A person who is
35claimed as a dependent by another person as defined in section
-1-1422.12 shall not receive the benefit of this subsection if
2the person claiming the dependent has net income exceeding
3thirteen thousand five hundred dollars or nine thousand dollars
4as applicable or the person claiming the dependent and the
5person’s spouse have combined net income exceeding thirteen
6thousand five hundred dollars or nine thousand dollars as
7applicable.
8 Sec. 2. Section 422.5, subsection 3, Code 2019, is amended
9by adding the following new paragraph:
10 NEW PARAGRAPH. c. (1) For purposes of this subsection,
11net income includes all amounts of pensions or other retirement
12income, except for military retirement pay excluded under
13section 422.7, subsection 31A, paragraph “a”, or section 422.7,
14subsection 31B, paragraph “a”, and except for retirement income
15excluded under section 422.7, subsection 31C, received from any
16source which is not taxable under this division as a result
17of the government pension exclusions in section 422.7, or any
18other state law.
19(2) This paragraph “c” is repealed January 1, 2023.
20 Sec. 3. Section 422.5, subsection 3B, paragraph a, Code
212019, is amended to read as follows:
22a. The tax shall not be imposed on a resident or nonresident
23who is at least sixty-five years old on December 31 of
24the tax year and whose net income, as defined in section
25422.7, is thirty-two thousand dollars or less in the case
26of married persons filing jointly or filing separately on a
27combined return, heads of household, and surviving spouses or
28twenty-four thousand dollars or less in the case of all other
29persons; but in the event that the payment of tax under this
30division would reduce the net income to less than thirty-two
31thousand dollars or twenty-four thousand dollars as applicable,
32then the tax shall be reduced to that amount which would result
33in allowing the taxpayer to retain a net income of thirty-two
34thousand dollars or twenty-four thousand dollars as applicable.
35The preceding sentence does not apply to estates or trusts.
-2-1For the purpose of this subsection, the entire net income,
2including any part of the net income not allocated to Iowa,
3shall be taken into account. For purposes of this subsection,
4net income includes all amounts of pensions or other retirement
5income, except for military retirement pay excluded under
6section 422.7, subsection 31A, paragraph “a”, or section 422.7,
7subsection 31B, paragraph “a”, received from any source which is
8not taxable under this division as a result of the government
9pension exclusions in section 422.7, or any other state law.
10 If the combined net income of a husband and wife exceeds
11thirty-two thousand dollars, neither of them shall receive the
12benefit of this subsection, and it is immaterial whether they
13file a joint return or separate returns. However, if a husband
14and wife file separate returns and have a combined net income
15of thirty-two thousand dollars or less, neither spouse shall
16receive the benefit of this paragraph, if one spouse has a net
17operating loss and elects to carry back or carry forward the
18loss as provided in section 422.9, subsection 3. A person
19who is claimed as a dependent by another person as defined in
20section 422.12 shall not receive the benefit of this subsection
21if the person claiming the dependent has net income exceeding
22thirty-two thousand dollars or twenty-four thousand dollars
23as applicable or the person claiming the dependent and the
24person’s spouse have combined net income exceeding thirty-two
25thousand dollars or twenty-four thousand dollars as applicable.
26 Sec. 4. Section 422.5, subsection 3B, Code 2019, is amended
27by adding the following new paragraph:
28 NEW PARAGRAPH. d. (1) For purposes of this subsection,
29net income includes all amounts of pensions or other retirement
30income, except for military retirement pay excluded under
31section 422.7, subsection 31A, paragraph “a”, or section 422.7,
32subsection 31B, paragraph “a”, and except for retirement income
33excluded under section 422.7, subsection 31C, received from any
34source which is not taxable under this division as a result
35of the government pension exclusions in section 422.7, or any
-3-1other state law.
2(2) This paragraph “d” is repealed January 1, 2023.
3 Sec. 5. Section 422.7, subsection 31, Code 2019, is amended
4to read as follows:
531. a. For a person who is disabled, or is fifty-five
6years of age or older, or is the surviving spouse of an
7individual or a survivor having an insurable interest in an
8individual who would have qualified for the exemption under
9this subsection for the tax year, subtract, to the extent
10included, the total amount of a governmental or other pension
11or retirement pay, including, but not limited to, defined
12benefit or defined contribution plans, annuities, individual
13retirement accounts, plans maintained or contributed to by an
14employer, or maintained or contributed to by a self-employed
15person as an employer, and deferred compensation plans or any
16earnings attributable to the deferred compensation plans, up
17to a maximum of six thousand dollars for a person, other than a
18husband or wife, who files a separate state income tax return
19and up to a maximum of twelve thousand dollars for a husband
20and wife who file a joint state income tax return. However, a
21surviving spouse who is not disabled or fifty-five years of age
22or older can only exclude the amount of pension or retirement
23pay received as a result of the death of the other spouse. A
24husband and wife filing separate state income tax returns or
25separately on a combined state return are allowed a combined
26maximum exclusion under this subsection of up to twelve
27thousand dollars. The twelve thousand dollar exclusion shall
28be allocated to the husband or wife in the proportion that each
29spouse’s respective pension and retirement pay received bears
30to total combined pension and retirement pay received.
31b. This subsection is repealed January 1, 2023.
32 Sec. 6. Section 422.7, subsection 31A, Code 2019, is amended
33by adding the following new paragraph:
34 NEW PARAGRAPH. c. This subsection is repealed January 1,
352023.
-4-1 Sec. 7. Section 422.7, subsection 31B, Code 2019, is amended
2by adding the following new paragraph:
3 NEW PARAGRAPH. c. This subsection is repealed January 1,
42023.
5 Sec. 8. Section 422.7, Code 2019, is amended by adding the
6following new subsection:
7 NEW SUBSECTION. 31C. a. (1) For tax years beginning
8in the 2019 calendar year, subtract, to the extent included,
9twenty percent of retirement income received by a taxpayer
10remaining after the subtractions in subsections 31, 31A, and
1131B.
12(2) For tax years beginning in the 2020 calendar year,
13subtract, to the extent included, forty percent of retirement
14income received by a taxpayer remaining after the subtractions
15in subsections 31, 31A, and 31B.
16(3) For tax years beginning in the 2021 calendar year,
17subtract, to the extent included, sixty percent of retirement
18income received by a taxpayer remaining after the subtractions
19in subsections 31, 31A, and 31B.
20(4) For tax years beginning in the 2022 calendar year,
21subtract, to the extent included, eighty percent of retirement
22income received by a taxpayer remaining after the subtractions
23in subsections 31, 31A, and 31B.
24(5) For tax years beginning on or after January 1, 2023,
25subtract, to the extent included, retirement income received
26by a taxpayer.
27b. For purposes of this subsection, “retirement income”
28means a governmental or other pension or retirement pay,
29including but not limited to defined benefit or defined
30contribution plans, annuities, individual retirement accounts,
31plans maintained or contributed to by an employer, or
32maintained or contributed to by a self-employed person as an
33employer, and deferred compensation plans or any earnings
34attributable to the deferred compensation plans.
35 Sec. 9. RETROACTIVE APPLICABILITY. This Act applies
-5-1retroactively to January 1, 2019, for tax years beginning on
2or after that date.
3EXPLANATION
4The inclusion of this explanation does not constitute agreement with
5the explanation’s substance by the members of the general assembly.
6This bill relates to the exclusion of retirement income from
7the computation of net income for purposes of the individual
8income tax.
9Under current law, a taxpayer may exclude all retirement
10pay, including certain survivor benefits, received from the
11federal government for military service performed in the armed
12forces, the armed forces military reserve, or national guard.
13In addition, a taxpayer who is disabled, who is at least 55
14years of age, or who is the surviving spouse or other specified
15survivor of that qualifying taxpayer, may exclude a maximum
16of $6,000 of other retirement income ($12,000 for married
17couples).
18The bill phases in over a five-year period the complete
19exclusion from the individual income tax of a taxpayer’s
20retirement income remaining after the two exclusions referenced
21above. The percentage of this retirement income that is
22excluded for tax years beginning in 2019, 2020, 2021, and
232022, is 20 percent, 40 percent, 60 percent, and 80 percent,
24respectively. For tax years beginning in 2023 or later, 100
25percent of a taxpayer’s retirement income will be excluded from
26the individual income tax.
27The bill also excludes this retirement income from the
28calculation of net income for purposes of determining whether
29or not a taxpayer’s net income exceeds the amount at which the
30individual income tax will not be imposed pursuant to Code
31section 422.5(3) or Code section 422.5(3B), and for which an
32individual income tax return is not required to be filed, and
33for purposes of calculating the alternate tax in Code section
34422.5, and further provides that any retirement income excluded
35from the individual income tax will not be added back to these
-6-1calculations for tax years beginning in 2023 or later.
2The bill defines “retirement income” for purposes of the
3exclusion.
4The bill applies retroactively to January 1, 2019, for tax
5years beginning on or after that date.
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2individual income tax of certain amounts of retirement
3income and including retroactive applicability provisions.
4BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA:
1 Section 1. Section 422.5, subsection 3, paragraph a, Code
22019, is amended to read as follows:
3a. The tax shall not be imposed on a resident or nonresident
4whose net income, as defined in section 422.7, is thirteen
5thousand five hundred dollars or less in the case of married
6persons filing jointly or filing separately on a combined
7return, heads of household, and surviving spouses or nine
8thousand dollars or less in the case of all other persons;
9but in the event that the payment of tax under this division
10would reduce the net income to less than thirteen thousand five
11hundred dollars or nine thousand dollars as applicable, then
12the tax shall be reduced to that amount which would result
13in allowing the taxpayer to retain a net income of thirteen
14thousand five hundred dollars or nine thousand dollars as
15applicable. The preceding sentence does not apply to estates
16or trusts. For the purpose of this subsection, the entire net
17income, including any part of the net income not allocated
18to Iowa, shall be taken into account. For purposes of this
19subsection, net income includes all amounts of pensions or
20other retirement income, except for military retirement pay
21excluded under section 422.7, subsection 31A, paragraph “a”,
22or section 422.7, subsection 31B, paragraph “a”, received from
23any source which is not taxable under this division as a result
24of the government pension exclusions in section 422.7, or any
25other state law. If the combined net income of a husband and
26wife exceeds thirteen thousand five hundred dollars, neither
27of them shall receive the benefit of this subsection, and it
28is immaterial whether they file a joint return or separate
29returns. However, if a husband and wife file separate returns
30and have a combined net income of thirteen thousand five
31hundred dollars or less, neither spouse shall receive the
32benefit of this paragraph, if one spouse has a net operating
33loss and elects to carry back or carry forward the loss as
34provided in section 422.9, subsection 3. A person who is
35claimed as a dependent by another person as defined in section
-1-1422.12 shall not receive the benefit of this subsection if
2the person claiming the dependent has net income exceeding
3thirteen thousand five hundred dollars or nine thousand dollars
4as applicable or the person claiming the dependent and the
5person’s spouse have combined net income exceeding thirteen
6thousand five hundred dollars or nine thousand dollars as
7applicable.
8 Sec. 2. Section 422.5, subsection 3, Code 2019, is amended
9by adding the following new paragraph:
10 NEW PARAGRAPH. c. (1) For purposes of this subsection,
11net income includes all amounts of pensions or other retirement
12income, except for military retirement pay excluded under
13section 422.7, subsection 31A, paragraph “a”, or section 422.7,
14subsection 31B, paragraph “a”, and except for retirement income
15excluded under section 422.7, subsection 31C, received from any
16source which is not taxable under this division as a result
17of the government pension exclusions in section 422.7, or any
18other state law.
19(2) This paragraph “c” is repealed January 1, 2023.
20 Sec. 3. Section 422.5, subsection 3B, paragraph a, Code
212019, is amended to read as follows:
22a. The tax shall not be imposed on a resident or nonresident
23who is at least sixty-five years old on December 31 of
24the tax year and whose net income, as defined in section
25422.7, is thirty-two thousand dollars or less in the case
26of married persons filing jointly or filing separately on a
27combined return, heads of household, and surviving spouses or
28twenty-four thousand dollars or less in the case of all other
29persons; but in the event that the payment of tax under this
30division would reduce the net income to less than thirty-two
31thousand dollars or twenty-four thousand dollars as applicable,
32then the tax shall be reduced to that amount which would result
33in allowing the taxpayer to retain a net income of thirty-two
34thousand dollars or twenty-four thousand dollars as applicable.
35The preceding sentence does not apply to estates or trusts.
-2-1For the purpose of this subsection, the entire net income,
2including any part of the net income not allocated to Iowa,
3shall be taken into account. For purposes of this subsection,
4net income includes all amounts of pensions or other retirement
5income, except for military retirement pay excluded under
6section 422.7, subsection 31A, paragraph “a”, or section 422.7,
7subsection 31B, paragraph “a”, received from any source which is
8not taxable under this division as a result of the government
9pension exclusions in section 422.7, or any other state law.
10 If the combined net income of a husband and wife exceeds
11thirty-two thousand dollars, neither of them shall receive the
12benefit of this subsection, and it is immaterial whether they
13file a joint return or separate returns. However, if a husband
14and wife file separate returns and have a combined net income
15of thirty-two thousand dollars or less, neither spouse shall
16receive the benefit of this paragraph, if one spouse has a net
17operating loss and elects to carry back or carry forward the
18loss as provided in section 422.9, subsection 3. A person
19who is claimed as a dependent by another person as defined in
20section 422.12 shall not receive the benefit of this subsection
21if the person claiming the dependent has net income exceeding
22thirty-two thousand dollars or twenty-four thousand dollars
23as applicable or the person claiming the dependent and the
24person’s spouse have combined net income exceeding thirty-two
25thousand dollars or twenty-four thousand dollars as applicable.
26 Sec. 4. Section 422.5, subsection 3B, Code 2019, is amended
27by adding the following new paragraph:
28 NEW PARAGRAPH. d. (1) For purposes of this subsection,
29net income includes all amounts of pensions or other retirement
30income, except for military retirement pay excluded under
31section 422.7, subsection 31A, paragraph “a”, or section 422.7,
32subsection 31B, paragraph “a”, and except for retirement income
33excluded under section 422.7, subsection 31C, received from any
34source which is not taxable under this division as a result
35of the government pension exclusions in section 422.7, or any
-3-1other state law.
2(2) This paragraph “d” is repealed January 1, 2023.
3 Sec. 5. Section 422.7, subsection 31, Code 2019, is amended
4to read as follows:
531. a. For a person who is disabled, or is fifty-five
6years of age or older, or is the surviving spouse of an
7individual or a survivor having an insurable interest in an
8individual who would have qualified for the exemption under
9this subsection for the tax year, subtract, to the extent
10included, the total amount of a governmental or other pension
11or retirement pay, including, but not limited to, defined
12benefit or defined contribution plans, annuities, individual
13retirement accounts, plans maintained or contributed to by an
14employer, or maintained or contributed to by a self-employed
15person as an employer, and deferred compensation plans or any
16earnings attributable to the deferred compensation plans, up
17to a maximum of six thousand dollars for a person, other than a
18husband or wife, who files a separate state income tax return
19and up to a maximum of twelve thousand dollars for a husband
20and wife who file a joint state income tax return. However, a
21surviving spouse who is not disabled or fifty-five years of age
22or older can only exclude the amount of pension or retirement
23pay received as a result of the death of the other spouse. A
24husband and wife filing separate state income tax returns or
25separately on a combined state return are allowed a combined
26maximum exclusion under this subsection of up to twelve
27thousand dollars. The twelve thousand dollar exclusion shall
28be allocated to the husband or wife in the proportion that each
29spouse’s respective pension and retirement pay received bears
30to total combined pension and retirement pay received.
31b. This subsection is repealed January 1, 2023.
32 Sec. 6. Section 422.7, subsection 31A, Code 2019, is amended
33by adding the following new paragraph:
34 NEW PARAGRAPH. c. This subsection is repealed January 1,
352023.
-4-1 Sec. 7. Section 422.7, subsection 31B, Code 2019, is amended
2by adding the following new paragraph:
3 NEW PARAGRAPH. c. This subsection is repealed January 1,
42023.
5 Sec. 8. Section 422.7, Code 2019, is amended by adding the
6following new subsection:
7 NEW SUBSECTION. 31C. a. (1) For tax years beginning
8in the 2019 calendar year, subtract, to the extent included,
9twenty percent of retirement income received by a taxpayer
10remaining after the subtractions in subsections 31, 31A, and
1131B.
12(2) For tax years beginning in the 2020 calendar year,
13subtract, to the extent included, forty percent of retirement
14income received by a taxpayer remaining after the subtractions
15in subsections 31, 31A, and 31B.
16(3) For tax years beginning in the 2021 calendar year,
17subtract, to the extent included, sixty percent of retirement
18income received by a taxpayer remaining after the subtractions
19in subsections 31, 31A, and 31B.
20(4) For tax years beginning in the 2022 calendar year,
21subtract, to the extent included, eighty percent of retirement
22income received by a taxpayer remaining after the subtractions
23in subsections 31, 31A, and 31B.
24(5) For tax years beginning on or after January 1, 2023,
25subtract, to the extent included, retirement income received
26by a taxpayer.
27b. For purposes of this subsection, “retirement income”
28means a governmental or other pension or retirement pay,
29including but not limited to defined benefit or defined
30contribution plans, annuities, individual retirement accounts,
31plans maintained or contributed to by an employer, or
32maintained or contributed to by a self-employed person as an
33employer, and deferred compensation plans or any earnings
34attributable to the deferred compensation plans.
35 Sec. 9. RETROACTIVE APPLICABILITY. This Act applies
-5-1retroactively to January 1, 2019, for tax years beginning on
2or after that date.
3EXPLANATION
4The inclusion of this explanation does not constitute agreement with
5the explanation’s substance by the members of the general assembly.
6This bill relates to the exclusion of retirement income from
7the computation of net income for purposes of the individual
8income tax.
9Under current law, a taxpayer may exclude all retirement
10pay, including certain survivor benefits, received from the
11federal government for military service performed in the armed
12forces, the armed forces military reserve, or national guard.
13In addition, a taxpayer who is disabled, who is at least 55
14years of age, or who is the surviving spouse or other specified
15survivor of that qualifying taxpayer, may exclude a maximum
16of $6,000 of other retirement income ($12,000 for married
17couples).
18The bill phases in over a five-year period the complete
19exclusion from the individual income tax of a taxpayer’s
20retirement income remaining after the two exclusions referenced
21above. The percentage of this retirement income that is
22excluded for tax years beginning in 2019, 2020, 2021, and
232022, is 20 percent, 40 percent, 60 percent, and 80 percent,
24respectively. For tax years beginning in 2023 or later, 100
25percent of a taxpayer’s retirement income will be excluded from
26the individual income tax.
27The bill also excludes this retirement income from the
28calculation of net income for purposes of determining whether
29or not a taxpayer’s net income exceeds the amount at which the
30individual income tax will not be imposed pursuant to Code
31section 422.5(3) or Code section 422.5(3B), and for which an
32individual income tax return is not required to be filed, and
33for purposes of calculating the alternate tax in Code section
34422.5, and further provides that any retirement income excluded
35from the individual income tax will not be added back to these
-6-1calculations for tax years beginning in 2023 or later.
2The bill defines “retirement income” for purposes of the
3exclusion.
4The bill applies retroactively to January 1, 2019, for tax
5years beginning on or after that date.
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