Iowa Taxpayers to Pay Flat 3.8% Income Tax Rate Next Year

Iowa Governor Kim Reynolds signed a new tax law on Wednesday that will lower the state’s income tax rate to a flat 3.8% next year, ahead of the previously planned 3.9% rate by 2026. The law, Senate File 2442, is part of a series of tax cuts implemented by Republicans over the past six years, aiming to make Iowa more competitive and reduce the tax burden on residents.

In addition to the income tax cut, the new law also includes changes to property tax rules and allows county supervisors to eliminate county compensation boards. These changes are expected to reduce state revenue by an additional $1 billion over three years and $100 million annually from 2028 to 2030, according to the nonpartisan Legislative Services Agency.

While some Democrats in the House and Senate supported the bill, Democratic leaders raised concerns about the distribution of benefits, arguing that the majority would go to the wealthiest Iowans. House Minority Leader Jennifer Konfrst criticized the bill for not providing any benefit to around 500,000 Iowans who do not pay income taxes.

Governor Reynolds also signed a separate bill on Wednesday aimed at attracting major businesses to the state by creating tax incentives for “megasites.” These sites, which must occupy at least 250 acres and have at least $1 billion in investments, will be eligible for investment tax credits, sales tax refunds, withholding tax credits, and local tax breaks.

Overall, the new tax laws are part of the ongoing efforts to stimulate economic growth in Iowa and make the state more attractive to businesses. Governor Reynolds highlighted the success of using tax incentives to land significant economic development projects in the state, emphasizing the importance of competitiveness in attracting investments and creating jobs.