Iowa Taxpayers to Pay Flat 3.8% Income Tax Rate Next Year, Gov. Reynolds Signs Law

DES MOINES — Iowa taxpayers will see a significant reduction in their income taxes next year, thanks to a new law signed by Governor Kim Reynolds on Wednesday. The law, Senate File 2442, will set a flat 3.8% income tax rate for Iowa residents, lower than the previously planned 3.9% rate by 2026.

This tax overhaul is part of a series of changes made by Republicans over the past six years to lower income taxes in Iowa. Governor Reynolds praised the transformation of Iowa’s tax code, stating that it has increased the state’s competitiveness and allowed for historic investments in key priorities.

In addition to the income tax reduction, the new law also makes changes to property tax rules and allows county supervisors to eliminate county compensation boards. These changes are expected to reduce state revenue by about $1 billion over three years and $100 million annually from 2028 to 2030.

While the bill received support from several Democrats in the House and Senate, Democratic leaders opposed it, arguing that the benefits primarily favor the wealthiest Iowans. House Minority Leader Jennifer Konfrst expressed concerns that the changes do not benefit around 500,000 Iowans who do not pay income taxes.

In a separate bill signed by Governor Reynolds on Wednesday, tax incentives were created to attract major businesses to the state. Senate File 574 establishes tax breaks for “megasites,” large business developments with at least 250 acres and $1 billion in investments. These businesses will be eligible for investment tax credits, sales tax refunds, withholding tax credits, and local tax breaks.

Overall, these tax changes are expected to have a significant impact on Iowa’s economy and business environment, as the state continues to attract new investments and create job opportunities for its residents.