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Senate File 37 - IntroducedA Bill ForAn Act 1relating to the exclusion of retirement income from the
2computation of the individual income tax including providing
3an exclusion for the federal civil service retirement
4system, and phasing in an exclusion of other retirement
5income, and including retroactive applicability provisions.
6BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA:
1 Section 1. Section 422.5, subsection 3, paragraph a, Code
22021, 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; but
9in the event that the payment of tax under this subchapter
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”, or
22section 422.7, subsection 31B, paragraph “a”, received from any
23source which is not taxable under this subchapter 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 2021, 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”, or retirement income excluded
15under section 422.7, subsection 31C, and except for retirement
16income excluded under section 422.7, subsection 31D, paragraph
17“a”, received from any source which is not taxable under this
18subchapter as a result of the government pension exclusions in
19section 422.7, or any other state law.
20(2) This paragraph “c” is repealed January 1, 2025.
21 Sec. 3. Section 422.5, subsection 3B, paragraph a, Code
222021, is amended to read as follows:
23a. The tax shall not be imposed on a resident or nonresident
24who is at least sixty-five years old on December 31 of
25the tax year and whose net income, as defined in section
26422.7, is thirty-two thousand dollars or less in the case
27of married persons filing jointly or filing separately on a
28combined return, heads of household, and surviving spouses or
29twenty-four thousand dollars or less in the case of all other
30persons; but in the event that the payment of tax under this
31subchapter would reduce the net income to less than thirty-two
32thousand dollars or twenty-four thousand dollars as applicable,
33then the tax shall be reduced to that amount which would result
34in allowing the taxpayer to retain a net income of thirty-two
35thousand dollars or twenty-four thousand dollars as applicable.
-2-1The preceding sentence does not apply to estates or trusts.
2For the purpose of this subsection, the entire net income,
3including any part of the net income not allocated to Iowa,
4shall be taken into account. For purposes of this subsection,
5net income includes all amounts of pensions or other retirement
6income, except for military retirement pay excluded under
7section 422.7, subsection 31A, paragraph “a”, or section 422.7,
8subsection 31B, paragraph “a”, received from any source which is
9not taxable under this subchapter as a result of the government
10pension exclusions in section 422.7, or any other state law.
11 If the combined net income of a husband and wife exceeds
12thirty-two thousand dollars, neither of them shall receive the
13benefit of this subsection, and it is immaterial whether they
14file a joint return or separate returns. However, if a husband
15and wife file separate returns and have a combined net income
16of thirty-two thousand dollars or less, neither spouse shall
17receive the benefit of this paragraph, if one spouse has a net
18operating loss and elects to carry back or carry forward the
19loss as provided in section 422.9, subsection 3. A person
20who is claimed as a dependent by another person as defined in
21section 422.12 shall not receive the benefit of this subsection
22if the person claiming the dependent has net income exceeding
23thirty-two thousand dollars or twenty-four thousand dollars
24as applicable or the person claiming the dependent and the
25person’s spouse have combined net income exceeding thirty-two
26thousand dollars or twenty-four thousand dollars as applicable.
27 Sec. 4. Section 422.5, subsection 3B, Code 2021, is amended
28by adding the following new paragraph:
29 NEW PARAGRAPH. d. (1) For purposes of this subsection,
30net income includes all amounts of pensions or other retirement
31income, except for military retirement pay excluded under
32section 422.7, subsection 31A, paragraph “a”, or retirement
33income excluded under section 422.7, subsection 31B, paragraph
34“a”, or retirement income excluded under section 422.7,
35subsection 31C, and except for retirement income excluded under
-3-1section 422.7, subsection 31D, paragraph “a”, received from any
2source which is not taxable under this subchapter as a result
3of the government pension exclusions in section 422.7, or any
4other state law.
5(2) This paragraph “d” is repealed January 1, 2025.
6 Sec. 5. Section 422.7, subsection 31, Code 2021, is amended
7to read as follows:
831. a. For a person who is disabled, or is fifty-five
9years of age or older, or is the surviving spouse of an
10individual or a survivor having an insurable interest in an
11individual who would have qualified for the exemption under
12this subsection for the tax year, subtract, to the extent
13included, the total amount of a governmental or other pension
14or retirement pay, including, but not limited to, defined
15benefit or defined contribution plans, annuities, individual
16retirement accounts, plans maintained or contributed to by an
17employer, or maintained or contributed to by a self-employed
18person as an employer, and deferred compensation plans or any
19earnings attributable to the deferred compensation plans, up
20to a maximum of six thousand dollars for a person, other than a
21husband or wife, who files a separate state income tax return
22and up to a maximum of twelve thousand dollars for a husband
23and wife who file a joint state income tax return. However, a
24surviving spouse who is not disabled or fifty-five years of age
25or older can only exclude the amount of pension or retirement
26pay received as a result of the death of the other spouse. A
27husband and wife filing separate state income tax returns or
28separately on a combined state return are allowed a combined
29maximum exclusion under this subsection of up to twelve
30thousand dollars. The twelve thousand dollar exclusion shall
31be allocated to the husband or wife in the proportion that each
32spouse’s respective pension and retirement pay received bears
33to total combined pension and retirement pay received.
34b. This subsection is repealed January 1, 2025.
35 Sec. 6. Section 422.7, subsection 31A, Code 2021, is amended
-4-1by adding the following new paragraph:
2 NEW PARAGRAPH. c. This subsection is repealed January 1,
32025.
4 Sec. 7. Section 422.7, subsection 31B, Code 2021, is amended
5by adding the following new paragraph:
6 NEW PARAGRAPH. c. This subsection is repealed January 1,
72025.
8 Sec. 8. Section 422.7, Code 2021, is amended by adding the
9following new subsections:
10 NEW SUBSECTION. 31C. a. Subtract, to the extent included,
11retirement income received by a taxpayer from the federal civil
12service retirement system.
13b. Subtract, to the extent included, amounts received as
14survivor benefits by a taxpayer from the federal civil service
15system.
16c. The exclusion of retirement income under this subsection
17is in addition to any exclusion provided under subsection 31.
18d. This subsection is repealed on January 1, 2025.
19 NEW SUBSECTION. 31D. a. (1) For tax years beginning
20in the 2021 calendar year, subtract, to the extent included,
21twenty percent of retirement income received by a taxpayer
22remaining after the subtractions in subsections 31, 31A, 31B,
23and 31C.
24(2) For tax years beginning in the 2022 calendar year,
25subtract, to the extent included, forty percent of retirement
26income received by a taxpayer remaining after the subtractions
27in subsections 31, 31A, 31B, and 31C.
28(3) For tax years beginning in the 2023 calendar year,
29subtract, to the extent included, sixty percent of retirement
30income received by a taxpayer remaining after the subtractions
31in subsections 31, 31A, 31B, and 31C.
32(4) For tax years beginning in the 2024 calendar year,
33subtract, to the extent included, eighty percent of retirement
34income received by a taxpayer remaining after the subtractions
35in subsections 31, 31A, 31B, and 31C.
-5- 1(5) This paragraph “a” is repealed on January 1, 2025.
2b. For tax years beginning on or after January 1, 2025,
3subtract, to the extent included, retirement income received
4by a taxpayer.
5c. For purposes of this subsection, “retirement income”
6means a governmental or other pension or retirement pay,
7including but not limited to defined benefit or defined
8contribution plans, annuities, individual retirement accounts,
9plans maintained or contributed to by an employer, or
10maintained or contributed to by a self-employed person as an
11employer, and deferred compensation plans or any earnings
12attributable to the deferred compensation plans.
13 Sec. 9. RETROACTIVE APPLICABILITY. This Act applies
14retroactively to January 1, 2021, for tax years beginning on
15or after that date.
16EXPLANATION
17The inclusion of this explanation does not constitute agreement with
18the explanation’s substance by the members of the general assembly.
19This bill relates to the exclusion of retirement income from
20the computation of net income for purposes of the individual
21income tax.
22The bill excludes from the individual income tax all
23retirement income received by an individual from the federal
24civil service retirement system and survivor benefits received
25from such system.
26The bill phases in over a five-year period the complete
27exclusion from the individual income tax of a taxpayer’s
28retirement income remaining after the exclusions referenced
29above. The percentage of this retirement income that is
30excluded for tax years beginning in 2021, 2022, 2023, and
312024, is 20 percent, 40 percent, 60 percent, and 80 percent,
32respectively. For tax years beginning in 2025 or later, 100
33percent of a taxpayer’s retirement income will be excluded from
34the individual income tax.
35The bill also excludes this retirement income from the
-6-1calculation of net income for purposes of determining whether
2or not a taxpayer’s net income exceeds the amount at which the
3individual income tax will not be imposed pursuant to Code
4section 422.5(3) or Code section 422.5(3B), and for which an
5individual income tax return is not required to be filed, and
6for purposes of calculating the alternate tax in Code section
7422.5, and further provides that any retirement income excluded
8from the individual income tax will not be added back to these
9calculations for tax years beginning in 2025 or later.
10The bill defines “retirement income” for purposes of the
11exclusion.
12Under current law, a taxpayer may exclude all retirement
13pay, including certain survivor benefits, received from the
14federal government for military service performed in the armed
15forces, the armed forces military reserve, or national guard.
16In addition, a taxpayer who is disabled, who is at least 55
17years of age, or who is the surviving spouse or other specified
18survivor of that qualifying taxpayer, may exclude a maximum
19of $6,000 of other retirement income ($12,000 for married
20couples).
21The bill applies retroactively to January 1, 2021, for tax
22years beginning on or after that date.
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2computation of the individual income tax including providing
3an exclusion for the federal civil service retirement
4system, and phasing in an exclusion of other retirement
5income, and including retroactive applicability provisions.
6BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA:
1 Section 1. Section 422.5, subsection 3, paragraph a, Code
22021, 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; but
9in the event that the payment of tax under this subchapter
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”, or
22section 422.7, subsection 31B, paragraph “a”, received from any
23source which is not taxable under this subchapter 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 2021, 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”, or retirement income excluded
15under section 422.7, subsection 31C, and except for retirement
16income excluded under section 422.7, subsection 31D, paragraph
17“a”, received from any source which is not taxable under this
18subchapter as a result of the government pension exclusions in
19section 422.7, or any other state law.
20(2) This paragraph “c” is repealed January 1, 2025.
21 Sec. 3. Section 422.5, subsection 3B, paragraph a, Code
222021, is amended to read as follows:
23a. The tax shall not be imposed on a resident or nonresident
24who is at least sixty-five years old on December 31 of
25the tax year and whose net income, as defined in section
26422.7, is thirty-two thousand dollars or less in the case
27of married persons filing jointly or filing separately on a
28combined return, heads of household, and surviving spouses or
29twenty-four thousand dollars or less in the case of all other
30persons; but in the event that the payment of tax under this
31subchapter would reduce the net income to less than thirty-two
32thousand dollars or twenty-four thousand dollars as applicable,
33then the tax shall be reduced to that amount which would result
34in allowing the taxpayer to retain a net income of thirty-two
35thousand dollars or twenty-four thousand dollars as applicable.
-2-1The preceding sentence does not apply to estates or trusts.
2For the purpose of this subsection, the entire net income,
3including any part of the net income not allocated to Iowa,
4shall be taken into account. For purposes of this subsection,
5net income includes all amounts of pensions or other retirement
6income, except for military retirement pay excluded under
7section 422.7, subsection 31A, paragraph “a”, or section 422.7,
8subsection 31B, paragraph “a”, received from any source which is
9not taxable under this subchapter as a result of the government
10pension exclusions in section 422.7, or any other state law.
11 If the combined net income of a husband and wife exceeds
12thirty-two thousand dollars, neither of them shall receive the
13benefit of this subsection, and it is immaterial whether they
14file a joint return or separate returns. However, if a husband
15and wife file separate returns and have a combined net income
16of thirty-two thousand dollars or less, neither spouse shall
17receive the benefit of this paragraph, if one spouse has a net
18operating loss and elects to carry back or carry forward the
19loss as provided in section 422.9, subsection 3. A person
20who is claimed as a dependent by another person as defined in
21section 422.12 shall not receive the benefit of this subsection
22if the person claiming the dependent has net income exceeding
23thirty-two thousand dollars or twenty-four thousand dollars
24as applicable or the person claiming the dependent and the
25person’s spouse have combined net income exceeding thirty-two
26thousand dollars or twenty-four thousand dollars as applicable.
27 Sec. 4. Section 422.5, subsection 3B, Code 2021, is amended
28by adding the following new paragraph:
29 NEW PARAGRAPH. d. (1) For purposes of this subsection,
30net income includes all amounts of pensions or other retirement
31income, except for military retirement pay excluded under
32section 422.7, subsection 31A, paragraph “a”, or retirement
33income excluded under section 422.7, subsection 31B, paragraph
34“a”, or retirement income excluded under section 422.7,
35subsection 31C, and except for retirement income excluded under
-3-1section 422.7, subsection 31D, paragraph “a”, received from any
2source which is not taxable under this subchapter as a result
3of the government pension exclusions in section 422.7, or any
4other state law.
5(2) This paragraph “d” is repealed January 1, 2025.
6 Sec. 5. Section 422.7, subsection 31, Code 2021, is amended
7to read as follows:
831. a. For a person who is disabled, or is fifty-five
9years of age or older, or is the surviving spouse of an
10individual or a survivor having an insurable interest in an
11individual who would have qualified for the exemption under
12this subsection for the tax year, subtract, to the extent
13included, the total amount of a governmental or other pension
14or retirement pay, including, but not limited to, defined
15benefit or defined contribution plans, annuities, individual
16retirement accounts, plans maintained or contributed to by an
17employer, or maintained or contributed to by a self-employed
18person as an employer, and deferred compensation plans or any
19earnings attributable to the deferred compensation plans, up
20to a maximum of six thousand dollars for a person, other than a
21husband or wife, who files a separate state income tax return
22and up to a maximum of twelve thousand dollars for a husband
23and wife who file a joint state income tax return. However, a
24surviving spouse who is not disabled or fifty-five years of age
25or older can only exclude the amount of pension or retirement
26pay received as a result of the death of the other spouse. A
27husband and wife filing separate state income tax returns or
28separately on a combined state return are allowed a combined
29maximum exclusion under this subsection of up to twelve
30thousand dollars. The twelve thousand dollar exclusion shall
31be allocated to the husband or wife in the proportion that each
32spouse’s respective pension and retirement pay received bears
33to total combined pension and retirement pay received.
34b. This subsection is repealed January 1, 2025.
35 Sec. 6. Section 422.7, subsection 31A, Code 2021, is amended
-4-1by adding the following new paragraph:
2 NEW PARAGRAPH. c. This subsection is repealed January 1,
32025.
4 Sec. 7. Section 422.7, subsection 31B, Code 2021, is amended
5by adding the following new paragraph:
6 NEW PARAGRAPH. c. This subsection is repealed January 1,
72025.
8 Sec. 8. Section 422.7, Code 2021, is amended by adding the
9following new subsections:
10 NEW SUBSECTION. 31C. a. Subtract, to the extent included,
11retirement income received by a taxpayer from the federal civil
12service retirement system.
13b. Subtract, to the extent included, amounts received as
14survivor benefits by a taxpayer from the federal civil service
15system.
16c. The exclusion of retirement income under this subsection
17is in addition to any exclusion provided under subsection 31.
18d. This subsection is repealed on January 1, 2025.
19 NEW SUBSECTION. 31D. a. (1) For tax years beginning
20in the 2021 calendar year, subtract, to the extent included,
21twenty percent of retirement income received by a taxpayer
22remaining after the subtractions in subsections 31, 31A, 31B,
23and 31C.
24(2) For tax years beginning in the 2022 calendar year,
25subtract, to the extent included, forty percent of retirement
26income received by a taxpayer remaining after the subtractions
27in subsections 31, 31A, 31B, and 31C.
28(3) For tax years beginning in the 2023 calendar year,
29subtract, to the extent included, sixty percent of retirement
30income received by a taxpayer remaining after the subtractions
31in subsections 31, 31A, 31B, and 31C.
32(4) For tax years beginning in the 2024 calendar year,
33subtract, to the extent included, eighty percent of retirement
34income received by a taxpayer remaining after the subtractions
35in subsections 31, 31A, 31B, and 31C.
-5- 1(5) This paragraph “a” is repealed on January 1, 2025.
2b. For tax years beginning on or after January 1, 2025,
3subtract, to the extent included, retirement income received
4by a taxpayer.
5c. For purposes of this subsection, “retirement income”
6means a governmental or other pension or retirement pay,
7including but not limited to defined benefit or defined
8contribution plans, annuities, individual retirement accounts,
9plans maintained or contributed to by an employer, or
10maintained or contributed to by a self-employed person as an
11employer, and deferred compensation plans or any earnings
12attributable to the deferred compensation plans.
13 Sec. 9. RETROACTIVE APPLICABILITY. This Act applies
14retroactively to January 1, 2021, for tax years beginning on
15or after that date.
16EXPLANATION
17The inclusion of this explanation does not constitute agreement with
18the explanation’s substance by the members of the general assembly.
19This bill relates to the exclusion of retirement income from
20the computation of net income for purposes of the individual
21income tax.
22The bill excludes from the individual income tax all
23retirement income received by an individual from the federal
24civil service retirement system and survivor benefits received
25from such system.
26The bill phases in over a five-year period the complete
27exclusion from the individual income tax of a taxpayer’s
28retirement income remaining after the exclusions referenced
29above. The percentage of this retirement income that is
30excluded for tax years beginning in 2021, 2022, 2023, and
312024, is 20 percent, 40 percent, 60 percent, and 80 percent,
32respectively. For tax years beginning in 2025 or later, 100
33percent of a taxpayer’s retirement income will be excluded from
34the individual income tax.
35The bill also excludes this retirement income from the
-6-1calculation of net income for purposes of determining whether
2or not a taxpayer’s net income exceeds the amount at which the
3individual income tax will not be imposed pursuant to Code
4section 422.5(3) or Code section 422.5(3B), and for which an
5individual income tax return is not required to be filed, and
6for purposes of calculating the alternate tax in Code section
7422.5, and further provides that any retirement income excluded
8from the individual income tax will not be added back to these
9calculations for tax years beginning in 2025 or later.
10The bill defines “retirement income” for purposes of the
11exclusion.
12Under current law, a taxpayer may exclude all retirement
13pay, including certain survivor benefits, received from the
14federal government for military service performed in the armed
15forces, the armed forces military reserve, or national guard.
16In addition, a taxpayer who is disabled, who is at least 55
17years of age, or who is the surviving spouse or other specified
18survivor of that qualifying taxpayer, may exclude a maximum
19of $6,000 of other retirement income ($12,000 for married
20couples).
21The bill applies retroactively to January 1, 2021, for tax
22years beginning on or after that date.
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