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Senate File 95 - 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 8.57E, subsection 2, Code 2021, is
2amended to read as follows:
32. Moneys in the taxpayer relief fund shall only be used
4pursuant to appropriations or transfers made by the general
5assembly for tax relief, including but not limited to increases
6in the general retirement income exclusion under section 422.7,
7subsection 31, or reductions in income tax rates.
8 Sec. 2. Section 422.5, subsection 3, paragraph a, Code 2021,
9is amended to read as follows:
10a. The tax shall not be imposed on a resident or nonresident
11whose net income, as defined in section 422.7, is thirteen
12thousand five hundred dollars or less in the case of married
13persons filing jointly or filing separately on a combined
14return, heads of household, and surviving spouses or nine
15thousand dollars or less in the case of all other persons; but
16in the event that the payment of tax under this subchapter
17would reduce the net income to less than thirteen thousand five
18hundred dollars or nine thousand dollars as applicable, then
19the tax shall be reduced to that amount which would result
20in allowing the taxpayer to retain a net income of thirteen
21thousand five hundred dollars or nine thousand dollars as
22applicable. The preceding sentence does not apply to estates
23or trusts. For the purpose of this subsection, the entire net
24income, including any part of the net income not allocated
25to Iowa, shall be taken into account. For purposes of this
26subsection, net income includes all amounts of pensions or
27other retirement income, except for military retirement pay
28excluded under section 422.7, subsection 31A, paragraph “a”, or
29section 422.7, subsection 31B, paragraph “a”, received from any
30source which is not taxable under this subchapter as a result
31of the government pension exclusions in section 422.7, or any
32other state law. If the combined net income of a husband and
33wife exceeds thirteen thousand five hundred dollars, neither
34of them shall receive the benefit of this subsection, and it
35is immaterial whether they file a joint return or separate
-1-1returns. However, if a husband and wife file separate returns
2and have a combined net income of thirteen thousand five
3hundred dollars or less, neither spouse shall receive the
4benefit of this paragraph, if one spouse has a net operating
5loss and elects to carry back or carry forward the loss as
6provided in section 422.9, subsection 3. A person who is
7claimed as a dependent by another person as defined in section
8422.12 shall not receive the benefit of this subsection if
9the person claiming the dependent has net income exceeding
10thirteen thousand five hundred dollars or nine thousand dollars
11as applicable or the person claiming the dependent and the
12person’s spouse have combined net income exceeding thirteen
13thousand five hundred dollars or nine thousand dollars as
14applicable.
15 Sec. 3. Section 422.5, subsection 3, Code 2021, is amended
16by adding the following new paragraph:
17 NEW PARAGRAPH. c. (1) For purposes of this subsection,
18net income includes all amounts of pensions or other retirement
19income, except for military retirement pay excluded under
20section 422.7, subsection 31A, paragraph “a”, or section 422.7,
21subsection 31B, paragraph “a”, and except for retirement income
22excluded under section 422.7, subsection 31C, received from any
23source which is not taxable under this division as a result
24of the government pension exclusions in section 422.7, or any
25other state law.
26(2) This paragraph “c” is repealed January 1, 2025.
27 Sec. 4. Section 422.5, subsection 3B, paragraph a, Code
282021, is amended to read as follows:
29a. The tax shall not be imposed on a resident or nonresident
30who is at least sixty-five years old on December 31 of
31the tax year and whose net income, as defined in section
32422.7, is thirty-two thousand dollars or less in the case
33of married persons filing jointly or filing separately on a
34combined return, heads of household, and surviving spouses or
35twenty-four thousand dollars or less in the case of all other
-2-1persons; but in the event that the payment of tax under this
2subchapter would reduce the net income to less than thirty-two
3thousand dollars or twenty-four thousand dollars as applicable,
4then the tax shall be reduced to that amount which would result
5in allowing the taxpayer to retain a net income of thirty-two
6thousand dollars or twenty-four thousand dollars as applicable.
7The preceding sentence does not apply to estates or trusts.
8For the purpose of this subsection, the entire net income,
9including any part of the net income not allocated to Iowa,
10shall be taken into account. 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”, received from any source which is
15not taxable under this subchapter as a result of the government
16pension exclusions in section 422.7, or any other state law.
17 If the combined net income of a husband and wife exceeds
18thirty-two thousand dollars, neither of them shall receive the
19benefit of this subsection, and it is immaterial whether they
20file a joint return or separate returns. However, if a husband
21and wife file separate returns and have a combined net income
22of thirty-two thousand dollars or less, neither spouse shall
23receive the benefit of this paragraph, if one spouse has a net
24operating loss and elects to carry back or carry forward the
25loss as provided in section 422.9, subsection 3. A person
26who is claimed as a dependent by another person as defined in
27section 422.12 shall not receive the benefit of this subsection
28if the person claiming the dependent has net income exceeding
29thirty-two thousand dollars or twenty-four thousand dollars
30as applicable or the person claiming the dependent and the
31person’s spouse have combined net income exceeding thirty-two
32thousand dollars or twenty-four thousand dollars as applicable.
33 Sec. 5. Section 422.5, subsection 3B, Code 2021, is amended
34by adding the following new paragraph:
35 NEW PARAGRAPH. d. (1) For purposes of this subsection,
-3-1net income includes all amounts of pensions or other retirement
2income, except for military retirement pay excluded under
3section 422.7, subsection 31A, paragraph “a”, or section 422.7,
4subsection 31B, paragraph “a”, and except for retirement income
5excluded under section 422.7, subsection 31C, received from any
6source which is not taxable under this division as a result
7of the government pension exclusions in section 422.7, or any
8other state law.
9(2) This paragraph “d” is repealed January 1, 2025.
10 Sec. 6. Section 422.7, subsection 31, Code 2021, is amended
11to read as follows:
1231. a. For a person who is disabled, or is fifty-five
13years of age or older, or is the surviving spouse of an
14individual or a survivor having an insurable interest in an
15individual who would have qualified for the exemption under
16this subsection for the tax year, subtract, to the extent
17included, the total amount of a governmental or other pension
18or retirement pay, including, but not limited to, defined
19benefit or defined contribution plans, annuities, individual
20retirement accounts, plans maintained or contributed to by an
21employer, or maintained or contributed to by a self-employed
22person as an employer, and deferred compensation plans or any
23earnings attributable to the deferred compensation plans, up
24to a maximum of six thousand dollars for a person, other than a
25husband or wife, who files a separate state income tax return
26and up to a maximum of twelve thousand dollars for a husband
27and wife who file a joint state income tax return. However, a
28surviving spouse who is not disabled or fifty-five years of age
29or older can only exclude the amount of pension or retirement
30pay received as a result of the death of the other spouse. A
31husband and wife filing separate state income tax returns or
32separately on a combined state return are allowed a combined
33maximum exclusion under this subsection of up to twelve
34thousand dollars. The twelve thousand dollar exclusion shall
35be allocated to the husband or wife in the proportion that each
-4-1spouse’s respective pension and retirement pay received bears
2to total combined pension and retirement pay received.
3b. This subsection is repealed January 1, 2025.
4 Sec. 7. Section 422.7, subsection 31A, Code 2021, is amended
5by adding the following new paragraph:
6 NEW PARAGRAPH. c. This section is repealed January 1, 2025.
7 Sec. 8. Section 422.7, subsection 31B, Code 2021, is amended
8by adding the following new paragraph:
9 NEW PARAGRAPH. c. This subsection is repealed January 1,
102025.
11 Sec. 9. Section 422.7, Code 2021, is amended by adding the
12following new subsection:
13 NEW SUBSECTION. 31C. a. (1) For tax years beginning
14in the 2021 calendar year, subtract, to the extent included,
15twenty percent of retirement income received by a taxpayer
16remaining after the subtractions in subsections 31, 31A, and
1731B.
18(2) For tax years beginning in the 2022 calendar year,
19subtract, to the extent included, forty percent of retirement
20income received by a taxpayer remaining after the subtractions
21in subsections 31, 31A, and 31B.
22(3) For tax years beginning in the 2023 calendar year,
23subtract, to the extent included, sixty percent of retirement
24income received by a taxpayer remaining after the subtractions
25in subsections 31, 31A, and 31B.
26(4) For tax years beginning in the 2024 calendar year,
27subtract, to the extent included, eighty percent of retirement
28income received by a taxpayer remaining after the subtractions
29in subsections 31, 31A, and 31B.
30(5) The paragraph is repealed January 1, 2025.
31b. For tax years beginning on or after January 1, 2025,
32subtract, to the extent included, retirement income received
33by a taxpayer.
34c. For purposes of this subsection, “retirement income”
35means a governmental or other pension or retirement pay,
-5-1including but not limited to defined benefit or defined
2contribution plans, annuities, individual retirement accounts,
3plans maintained or contributed to by an employer, or
4maintained or contributed to by a self-employed person as an
5employer, and deferred compensation plans or any earnings
6attributable to the deferred compensation plans. “Retirement
7income” includes amounts received as survivor benefits by a
8taxpayer from the federal government pursuant to 10 U.S.C.
9§1447, et seq.
10 Sec. 10. RETROACTIVE APPLICABILITY. This Act applies
11retroactively to January 1, 2021, for tax years beginning on
12or after that date.
13EXPLANATION
14The inclusion of this explanation does not constitute agreement with
15the explanation’s substance by the members of the general assembly.
16This bill relates to the exclusion of retirement income from
17the computation of net income for purposes of the individual
18income tax.
19Under current law, a taxpayer may exclude all retirement
20pay, including certain survivor benefits, received from the
21federal government for military service performed in the armed
22forces, the armed forces military reserve, or national guard.
23In addition, a taxpayer who is disabled, who is at least 55
24years of age, or who is the surviving spouse or other specified
25survivor of that qualifying taxpayer, may exclude a maximum
26of $6,000 of other retirement income ($12,000 for married
27couples).
28The bill strikes a provision permitting moneys in the
29taxpayer relief fund to be used for increases in the general
30retirement income exclusions in 422.7(31) because the bill
31provides for a complete exclusion of such retirement income.
32The bill phases in over a five-year period the complete
33exclusion from the individual income tax of a taxpayer’s
34retirement income remaining after the two exclusions referenced
35above. The percentage of this retirement income that is
-6-1excluded for tax years beginning in 2021, 2022, 2023, and
22024, is 20 percent, 40 percent, 60 percent, and 80 percent,
3respectively. For tax years beginning in 2025 or later, 100
4percent of a taxpayer’s retirement income will be excluded from
5the individual income tax.
6The bill also excludes this retirement income from the
7calculation of net income for purposes of determining whether
8or not a taxpayer’s net income exceeds the amount at which the
9individual income tax will not be imposed pursuant to Code
10section 422.5(3) or Code section 422.5(3B), and for which an
11individual income tax return is not required to be filed, and
12for purposes of calculating the alternate tax in Code section
13422.5, and further provides that any retirement income excluded
14from the individual income tax will not be added back to these
15calculations for tax years beginning in 2025 or later.
16The bill defines “retirement income” for purposes of the
17exclusion.
18The bill applies retroactively to January 1, 2021, for tax
19years 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 8.57E, subsection 2, Code 2021, is
2amended to read as follows:
32. Moneys in the taxpayer relief fund shall only be used
4pursuant to appropriations or transfers made by the general
5assembly for tax relief, including but not limited to increases
6in the general retirement income exclusion under section 422.7,
7subsection 31, or reductions in income tax rates.
8 Sec. 2. Section 422.5, subsection 3, paragraph a, Code 2021,
9is amended to read as follows:
10a. The tax shall not be imposed on a resident or nonresident
11whose net income, as defined in section 422.7, is thirteen
12thousand five hundred dollars or less in the case of married
13persons filing jointly or filing separately on a combined
14return, heads of household, and surviving spouses or nine
15thousand dollars or less in the case of all other persons; but
16in the event that the payment of tax under this subchapter
17would reduce the net income to less than thirteen thousand five
18hundred dollars or nine thousand dollars as applicable, then
19the tax shall be reduced to that amount which would result
20in allowing the taxpayer to retain a net income of thirteen
21thousand five hundred dollars or nine thousand dollars as
22applicable. The preceding sentence does not apply to estates
23or trusts. For the purpose of this subsection, the entire net
24income, including any part of the net income not allocated
25to Iowa, shall be taken into account. For purposes of this
26subsection, net income includes all amounts of pensions or
27other retirement income, except for military retirement pay
28excluded under section 422.7, subsection 31A, paragraph “a”, or
29section 422.7, subsection 31B, paragraph “a”, received from any
30source which is not taxable under this subchapter as a result
31of the government pension exclusions in section 422.7, or any
32other state law. If the combined net income of a husband and
33wife exceeds thirteen thousand five hundred dollars, neither
34of them shall receive the benefit of this subsection, and it
35is immaterial whether they file a joint return or separate
-1-1returns. However, if a husband and wife file separate returns
2and have a combined net income of thirteen thousand five
3hundred dollars or less, neither spouse shall receive the
4benefit of this paragraph, if one spouse has a net operating
5loss and elects to carry back or carry forward the loss as
6provided in section 422.9, subsection 3. A person who is
7claimed as a dependent by another person as defined in section
8422.12 shall not receive the benefit of this subsection if
9the person claiming the dependent has net income exceeding
10thirteen thousand five hundred dollars or nine thousand dollars
11as applicable or the person claiming the dependent and the
12person’s spouse have combined net income exceeding thirteen
13thousand five hundred dollars or nine thousand dollars as
14applicable.
15 Sec. 3. Section 422.5, subsection 3, Code 2021, is amended
16by adding the following new paragraph:
17 NEW PARAGRAPH. c. (1) For purposes of this subsection,
18net income includes all amounts of pensions or other retirement
19income, except for military retirement pay excluded under
20section 422.7, subsection 31A, paragraph “a”, or section 422.7,
21subsection 31B, paragraph “a”, and except for retirement income
22excluded under section 422.7, subsection 31C, received from any
23source which is not taxable under this division as a result
24of the government pension exclusions in section 422.7, or any
25other state law.
26(2) This paragraph “c” is repealed January 1, 2025.
27 Sec. 4. Section 422.5, subsection 3B, paragraph a, Code
282021, is amended to read as follows:
29a. The tax shall not be imposed on a resident or nonresident
30who is at least sixty-five years old on December 31 of
31the tax year and whose net income, as defined in section
32422.7, is thirty-two thousand dollars or less in the case
33of married persons filing jointly or filing separately on a
34combined return, heads of household, and surviving spouses or
35twenty-four thousand dollars or less in the case of all other
-2-1persons; but in the event that the payment of tax under this
2subchapter would reduce the net income to less than thirty-two
3thousand dollars or twenty-four thousand dollars as applicable,
4then the tax shall be reduced to that amount which would result
5in allowing the taxpayer to retain a net income of thirty-two
6thousand dollars or twenty-four thousand dollars as applicable.
7The preceding sentence does not apply to estates or trusts.
8For the purpose of this subsection, the entire net income,
9including any part of the net income not allocated to Iowa,
10shall be taken into account. 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”, received from any source which is
15not taxable under this subchapter as a result of the government
16pension exclusions in section 422.7, or any other state law.
17 If the combined net income of a husband and wife exceeds
18thirty-two thousand dollars, neither of them shall receive the
19benefit of this subsection, and it is immaterial whether they
20file a joint return or separate returns. However, if a husband
21and wife file separate returns and have a combined net income
22of thirty-two thousand dollars or less, neither spouse shall
23receive the benefit of this paragraph, if one spouse has a net
24operating loss and elects to carry back or carry forward the
25loss as provided in section 422.9, subsection 3. A person
26who is claimed as a dependent by another person as defined in
27section 422.12 shall not receive the benefit of this subsection
28if the person claiming the dependent has net income exceeding
29thirty-two thousand dollars or twenty-four thousand dollars
30as applicable or the person claiming the dependent and the
31person’s spouse have combined net income exceeding thirty-two
32thousand dollars or twenty-four thousand dollars as applicable.
33 Sec. 5. Section 422.5, subsection 3B, Code 2021, is amended
34by adding the following new paragraph:
35 NEW PARAGRAPH. d. (1) For purposes of this subsection,
-3-1net income includes all amounts of pensions or other retirement
2income, except for military retirement pay excluded under
3section 422.7, subsection 31A, paragraph “a”, or section 422.7,
4subsection 31B, paragraph “a”, and except for retirement income
5excluded under section 422.7, subsection 31C, received from any
6source which is not taxable under this division as a result
7of the government pension exclusions in section 422.7, or any
8other state law.
9(2) This paragraph “d” is repealed January 1, 2025.
10 Sec. 6. Section 422.7, subsection 31, Code 2021, is amended
11to read as follows:
1231. a. For a person who is disabled, or is fifty-five
13years of age or older, or is the surviving spouse of an
14individual or a survivor having an insurable interest in an
15individual who would have qualified for the exemption under
16this subsection for the tax year, subtract, to the extent
17included, the total amount of a governmental or other pension
18or retirement pay, including, but not limited to, defined
19benefit or defined contribution plans, annuities, individual
20retirement accounts, plans maintained or contributed to by an
21employer, or maintained or contributed to by a self-employed
22person as an employer, and deferred compensation plans or any
23earnings attributable to the deferred compensation plans, up
24to a maximum of six thousand dollars for a person, other than a
25husband or wife, who files a separate state income tax return
26and up to a maximum of twelve thousand dollars for a husband
27and wife who file a joint state income tax return. However, a
28surviving spouse who is not disabled or fifty-five years of age
29or older can only exclude the amount of pension or retirement
30pay received as a result of the death of the other spouse. A
31husband and wife filing separate state income tax returns or
32separately on a combined state return are allowed a combined
33maximum exclusion under this subsection of up to twelve
34thousand dollars. The twelve thousand dollar exclusion shall
35be allocated to the husband or wife in the proportion that each
-4-1spouse’s respective pension and retirement pay received bears
2to total combined pension and retirement pay received.
3b. This subsection is repealed January 1, 2025.
4 Sec. 7. Section 422.7, subsection 31A, Code 2021, is amended
5by adding the following new paragraph:
6 NEW PARAGRAPH. c. This section is repealed January 1, 2025.
7 Sec. 8. Section 422.7, subsection 31B, Code 2021, is amended
8by adding the following new paragraph:
9 NEW PARAGRAPH. c. This subsection is repealed January 1,
102025.
11 Sec. 9. Section 422.7, Code 2021, is amended by adding the
12following new subsection:
13 NEW SUBSECTION. 31C. a. (1) For tax years beginning
14in the 2021 calendar year, subtract, to the extent included,
15twenty percent of retirement income received by a taxpayer
16remaining after the subtractions in subsections 31, 31A, and
1731B.
18(2) For tax years beginning in the 2022 calendar year,
19subtract, to the extent included, forty percent of retirement
20income received by a taxpayer remaining after the subtractions
21in subsections 31, 31A, and 31B.
22(3) For tax years beginning in the 2023 calendar year,
23subtract, to the extent included, sixty percent of retirement
24income received by a taxpayer remaining after the subtractions
25in subsections 31, 31A, and 31B.
26(4) For tax years beginning in the 2024 calendar year,
27subtract, to the extent included, eighty percent of retirement
28income received by a taxpayer remaining after the subtractions
29in subsections 31, 31A, and 31B.
30(5) The paragraph is repealed January 1, 2025.
31b. For tax years beginning on or after January 1, 2025,
32subtract, to the extent included, retirement income received
33by a taxpayer.
34c. For purposes of this subsection, “retirement income”
35means a governmental or other pension or retirement pay,
-5-1including but not limited to defined benefit or defined
2contribution plans, annuities, individual retirement accounts,
3plans maintained or contributed to by an employer, or
4maintained or contributed to by a self-employed person as an
5employer, and deferred compensation plans or any earnings
6attributable to the deferred compensation plans. “Retirement
7income” includes amounts received as survivor benefits by a
8taxpayer from the federal government pursuant to 10 U.S.C.
9§1447, et seq.
10 Sec. 10. RETROACTIVE APPLICABILITY. This Act applies
11retroactively to January 1, 2021, for tax years beginning on
12or after that date.
13EXPLANATION
14The inclusion of this explanation does not constitute agreement with
15the explanation’s substance by the members of the general assembly.
16This bill relates to the exclusion of retirement income from
17the computation of net income for purposes of the individual
18income tax.
19Under current law, a taxpayer may exclude all retirement
20pay, including certain survivor benefits, received from the
21federal government for military service performed in the armed
22forces, the armed forces military reserve, or national guard.
23In addition, a taxpayer who is disabled, who is at least 55
24years of age, or who is the surviving spouse or other specified
25survivor of that qualifying taxpayer, may exclude a maximum
26of $6,000 of other retirement income ($12,000 for married
27couples).
28The bill strikes a provision permitting moneys in the
29taxpayer relief fund to be used for increases in the general
30retirement income exclusions in 422.7(31) because the bill
31provides for a complete exclusion of such retirement income.
32The bill phases in over a five-year period the complete
33exclusion from the individual income tax of a taxpayer’s
34retirement income remaining after the two exclusions referenced
35above. The percentage of this retirement income that is
-6-1excluded for tax years beginning in 2021, 2022, 2023, and
22024, is 20 percent, 40 percent, 60 percent, and 80 percent,
3respectively. For tax years beginning in 2025 or later, 100
4percent of a taxpayer’s retirement income will be excluded from
5the individual income tax.
6The bill also excludes this retirement income from the
7calculation of net income for purposes of determining whether
8or not a taxpayer’s net income exceeds the amount at which the
9individual income tax will not be imposed pursuant to Code
10section 422.5(3) or Code section 422.5(3B), and for which an
11individual income tax return is not required to be filed, and
12for purposes of calculating the alternate tax in Code section
13422.5, and further provides that any retirement income excluded
14from the individual income tax will not be added back to these
15calculations for tax years beginning in 2025 or later.
16The bill defines “retirement income” for purposes of the
17exclusion.
18The bill applies retroactively to January 1, 2021, for tax
19years beginning on or after that date.
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