Iowa State & Local Income Tax Information
Iowa residents or part-year residents, as as well as nonresidents with income from Iowa sources, are required to pay Iowa's state income tax and file state returns, provided their income is above a certain level. Depending on where you live in the state, you may also have to pay a local surtax.
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Requirements
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If you meet the requirements for net income, you have to file. For the 2009 tax year, for example, the threshold was a net income of $9,000 for residents with a single filing status and $13,500 for other residents; $5,000 for someone claimed as a dependent on an Iowa return; and $1,000 from Iowa sources for nonresidents and part-year residents.
The deadline to file returns is May 1--or April 30, if the first of May falls on a weekend. If you've paid 90 percent of your tax liability by the deadline, you can take an extension until Nov. 1. You don't have to request an extension; late-filing fees are simply waived if you've paid enough.
Rates
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As of 2010, Iowa had nine progressive tax brackets, ranging from 0.36 percent on the first $1,000 of taxable income to 8.98 percent on all taxable income above $45,000.
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Deductions
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Rules for Iowa tax deductions follow the federal government's, with a notable exception. Health insurance premiums that you pay out of pocket--rather than taken out of your paycheck in "pre-tax dollars"--are 100 percent deductible on Iowa income taxes, and you don't have to itemize to claim the deduction. On federal taxes, by contrast, health insurance premiums are lumped in with all your other health care costs, and you can deduct only the amount that exceeds 7.5 percent of your income--and only if you itemize.
Consideration
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A quirk in Iowa tax law adds a step to the process of filing your taxes, and it makes the state's tax rates appear higher when compared with other states' rates. In most states with an income tax, you don't take a deduction for the federal taxes you've paid because the state tax rates take your federal liability into account. That's not the case in Iowa, where taxpayers must go through the extra step of subtracting their federal tax payments from their taxable income.
Here's a simplified example: Say that you had income of $50,000 and paid $10,000 in federal taxes. In any other state, you would apply the state tax rate to the entire $50,000. So a rate of, say, 5 percent would produce a state tax bill of $2,500. In Iowa, however, you would first subtract the $10,000, giving you a taxable income of $40,000, then you would apply the state tax rate. To get the same $2,500, Iowa has to charge a rate of 6.25 percent.
Attempts to eliminate this "federal deductibility" have failed repeatedly over the years.
Surtax
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Most Iowa taxpayers must also pay a local income surtax, which goes to fund schools and emergency medical services. The amount you pay depends on the county and school district in which you live, and it is figured as a percentage of your total state tax liability. For example, if you were living in the Jefferson-Scranton school district in Greene County in 2009, you had a surtax of 7 percent. If your state tax liability was $2,000, then your surtax would be $140. The state collects the surtax and distributes it to counties and school districts.
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References
- Photo Credit USA states series: Iowa. Political map with counties image by Stasys Eidiejus from Fotolia.com
