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Iowa Tax Guide: Moving to 3.8% Flat Tax

Iowa is phasing in a flat income tax. Learn about current rates, sales tax, property taxes, and deductions for 2025.

3.8%
Flat Income Tax Rate
6.94%
Combined Sales Tax
1.52%
Property Tax Rate
#23
Tax Burden Rank

Tax Overview

Iowa is in the middle of a significant tax reform, transitioning from a progressive income tax system to a flat rate of 3.8% by 2026. For 2025, the state is using a transitional flat rate of 3.8% as part of the phase-in. This represents a dramatic reduction from the previous top rate of 8.53% and makes Iowa far more competitive with neighboring states.

Sales tax in Iowa is 6% at the state level, with local option taxes of up to 1% in most jurisdictions, creating a typical combined rate of 7%. Iowa exempts most grocery food items from sales tax. The state also offers periodic sales tax holidays. Iowa is notable for having relatively high property taxes, with effective rates around 1.52%, well above the national average.

Iowa has been working to make its tax code more retirement-friendly. The state now fully exempts retirement income, including pensions, 401(k) distributions, and IRA withdrawals, from state income tax for taxpayers age 55 and older. Social Security benefits are also fully exempt. These changes, combined with the lower flat tax rate, significantly improve Iowa's competitiveness for retirees.

Income Tax

Iowa has transitioned to a flat 3.8% rate from a progressive system that previously topped out at 8.53%. This is part of a multi-year reform.

Flat Tax Rate: 3.80%

Sales Tax

State Rate6.00%
Avg. Local Rate0.94%
Combined Rate6.94%

Property Tax

Effective Rate1.52%
Median Annual Bill$2,522

Key Deductions in Iowa

  • ✓Federal income tax deduction on state return (being phased out)
  • ✓Full retirement income exemption for taxpayers age 55+
  • ✓Iowa 529 plan contribution deduction (up to $3,785 per beneficiary)
  • ✓Tuition and textbook credit for K-12 expenses
  • ✓Earned income tax credit (15% of federal EITC)
  • ✓Child and dependent care tax credit

Filing Information

Filing Deadline: April 30

Tax Authority: Iowa Department of Revenue

Phone: (515) 281-3114

Website: https://tax.iowa.gov

Frequently Asked Questions

When does Iowa's flat tax fully take effect?
Iowa has been phasing in its flat income tax rate, reaching 3.8% for tax year 2026. The transition from the prior progressive system (which had rates up to 8.53%) has been one of the largest tax reforms in Iowa history.
Is retirement income taxed in Iowa?
No, Iowa fully exempts retirement income from state income tax for taxpayers age 55 and older. This includes pensions, 401(k) distributions, IRA withdrawals, and Social Security benefits.
Can I deduct federal taxes on my Iowa return?
Iowa previously allowed a full deduction for federal income taxes paid, but this deduction is being phased out as part of the tax reform that introduced the flat rate. Check current year instructions for the allowable amount.
What is Iowa's filing deadline?
Iowa state income tax returns are due April 30, giving residents about two weeks beyond the federal April 15 deadline. This extra time can be helpful for those who need to complete their federal return first.

Neighboring State Guides

MinnesotaWisconsinIllinoisMissouriNebraskaSouth Dakota

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