Iowa Governor Kim Reynolds approved legislation earlier this year collapsing Iowa’s three personal income tax brackets to a single tax rate of just 3.8%. The change takes effect January 1, 2025.
Targeted Jobs Withholding Credit
The law also extended the Targeted Jobs Withholding Credit, a special tax benefit program for companies operating in three Alliant Energy communities. This credit allows a diversion of withholdings paid by an employer within five designated pilot cities. The city then matches that diversion. The money can be used for economic incentives to stimulate growth of targeted businesses.
Businesses located in the Alliant Energy-served cities of Burlington, Fort Madison and Keokuk may qualify. Find additional qualification requirements at the Iowa Economic Development Authority’s website.
Corporate income tax changes
Turning to corporate income tax, a 2022 bill set the state on a path to improved competitiveness.
Here’s how it works. If the Department of Management determines net corporate income tax receipts in a fiscal year exceeded $700 million, the following year’s rate must be set at the level that would have generated $700 million only. This process will continue until the rate is just 5.5%. For comparison, the top marginal rate in 2024 was 7.1%.
“We’re sending a very clear message to the rest of the country that Iowa is open for business,” Governor Reynolds said upon signing the 2022 bill.
To hear more about Iowa’s new tax environment, reach out to us.