Like your federal income taxes, there are a lot of moving parts when calculating and filing Iowa state taxes. In addition to your income tax rate, you must determine if there are deductions, credits, and other taxes that need to be accounted for.
To make it as easy as possible for you to have your taxes ready to file well before the April 15th deadline, we’ve created a tax calculator that can be used to determine how much you’ll owe in taxes.
Iowa is a growing state, and that growth has to be supported financially. From income taxes to general excise taxes, there are a number of taxes that an Iowa resident can expect to pay to support the state's overall infrastructure. Notably, Iowa maintains an income tax, sales tax, and real property tax.
Iowa State Taxes: Quick Facts
Income tax: 0.33% - 8.53%
Sales tax: 6%
Property tax: 1.29%
Keep reading to find everything you’ll need to know about calculating and paying your Iowa state taxes.
Iowa State Tax Brackets
So, exactly how much is Iowa state tax? As of 2019, Iowa's state income taxes range from 0.33% to 8.53% depending on income bracket.
The 2019 income tax brackets are as follows:
$0 to $1,638: $0 + (0.33% x $0)
$1,540 to $3,276: $5.41 + (0.67% x $1,638)
$3,276 to $6,552: $16.38 + ( 2.25% x $3,276)
$6,552 to $14,742: $90.09 + (4.14% x $6,552)
$14,742 to $24,570: $429.16 + (5.63% x $14,742)
$24,570 to $32,760: $982. 48 + (5.96% x $24,570)
$32, 760 to $49,140: $1,470.60 + (6.25% x $32,760)
$49,140 to $73,710: $2,494.35 + (7.44% x $49,140)
$73,710 +: $4,322.36 + (8.53% x $73,710)
These tax brackets do not change depending on whether you're single or married. However, your standard deduction does.
Married filing separately
Married filing jointly
Head of Household:
Qualifying Widow(er) with Dependent Child
Note: The Iowa income tax rate is updated from year-to-year, so you should make sure that you're operating with the right numbers.
Iowa Personal Income Tax
Just like the federal government, many states have their own income taxes. State income taxes are calculated based on the amount of money a resident of the state makes. A portion of the individual's income is set aside for the state's own infrastructure. Not every state has income taxes, for instance, Texas does not require income taxes. However, Iowa does. Generally, states that don't have income taxes have higher property or sales taxes, to compensate.
Annual 2019 Tax Burden ($75,000/yr income)
Total Estimated Tax Burden
Remaining Income = $63,134
Iowa allows its residents to deduct the amount of its federal income taxes from its state income taxes, which can lower your overall tax burden.
Do you need to file personal income taxes?
In Iowa, you must file an income tax return if you made more than $9,000 and your filing status is single or if you made more than $13,500 and have any other filing status. If you were a non-resident, you must pay Iowa income taxes if you made $1,000 or more from Iowa sources. Since the average household in Iowa makes $58,570 annually (according to 2017 census data) most people have to file.
State income taxes are required for individuals, trusts, and estates. When someone passes on, a final tax return will often need to be filed on their behalf. Since trusts and estates are treated as individuals, they will also need to pay both federal and state tax returns.
The above income tax rates are for individuals. There are separate state income tax rates for companies. Companies will pay between 6% to 12% in taxes depending on their tax brackets. Iowa has the highest marginal tax rate for companies in the entire nation. This ensures that companies are paying for the state's infrastructure, and goes back into investments for the state itself.
Want to learn more about the differences between taxes for individuals, businesses, and estates? An expert at Community Tax can help make it clear!
What If You Live or Work in Illinois?
There are special arrangements for those who work in Illinois. If someone works in Illinois and lives in Iowa, they are only responsible for Iowa state taxes. If someone works in Iowa and lives in Illinois, they are only responsible for Illinois state taxes. This allows for an individual to cross the border for work without being taxed twice. It's a fairly common tax agreement for those who work along a border.
Our pros make filing income tax a breeze, Give us a call!
Capital gains tax is a special type of tax that comes from selling a large asset, such as real property. Capital gains tax in Iowa is 9% at its highest, in addition to any federal capital gains tax charged. Capital gains sales tax from the sale of a primary home usually isn't taxed unless the gains are significant. There are also ways to avoid capital gains tax when purchasing and selling similar properties, through something known as a like-kind exchange.
Capital gains tax can be used to offset losses, and can be controlled by strategically selling assets with the right timing. Since capital gains tax can be very significant, it's worth it for an individual (or a business) to consult with a tax professional before they sell an asset.
Capital gains tax is frequently applied to things such as homes, vacation homes, vehicles, large and heavy equipment, stocks, bonds, and other financial instruments. Any asset that is bought as an investment and sold as a profit will usually qualify for capital gains tax.
Iowa Sales Tax
In addition to Iowa state tax, Iowa also taxes sales. As of July 1, 2008, Iowa's sales tax increased from 5% to 6%. This 6% rate is applied to goods that are sold within the state of Iowa. Sales taxes are used to support the state much like state income taxes are. By taxing sales within the state, the state is able to get a cut of any commerce that goes on within its borders.
Further, localities may choose to add their own local sales tax rates. When localities have their own tax rates, the sales tax is charged for both the state and the locality. Usually, a consumer doesn't need to worry about this. A vendor will calculate these tax rates and include it on the consumer's receipt.
The consumer will just need to pay the taxes at the time of check-out. On the vendor side, the vendor will need to track this and will need to pay taxes both to the state and to the locality.
Non-prepared food in Iowa does not have sales tax. How states apply their sales tax is variable depending on the state. Some states only charge for goods and not services. Other states charge for both. Some states charge for groceries and prepared food. Other states only charge for prepared food.
Iowa's choice to not levy sales tax against non-prepared food is to encourage people to prepare their own food.
Taxes may change from based on the area you reside in. Places with higher property values, better school districts, and more highways and transportation infrastructure will generally have higher tax rates. Individuals may want to look into the taxes in an area before moving, as they can substantially change the cost of living in an area. Sales tax, for instance, can make purchasing food and other basic necessities more expensive. Property tax can increase both the costs of homeownership and renting.
Iowa Car Taxes
Like many other states, Iowa does collect a tax on car purchases. A 5% sales tax is collected every time a vehicle is purchased in Iowa as a "One Time Purchase Fee." This fee is capped: it cannot exceed $400. Iowa requires both registration fees and title fees at the time that a vehicle is purchased within the state.
Further, sales tax can be applied to both car purchases and car leases. Often, sales tax for a vehicle is paid after the vehicle has been purchased and driven off the lot. If a driver isn't prepared for these taxes, they can come as quite a surprise.
Apart from car taxes, drivers will also need to pay for registration for the vehicle. This is separate from the tax, but both will need to be paid. Some dealerships will pay the tax on your behalf or roll the tax into the cost of the car loan.
There are tax exemptions for vehicle purchases so anyone who is about to purchase a vehicle should connect with the Iowa treasurer's office. Calculators can be used to estimate the true cost of purchasing a car in Iowa, which includes automobile taxes, fees, registration costs, and use tax.
Car-related taxes are general excise taxes, but they differ because they aren't paid at the point-of-sale. Instead, car-related taxes are usually paid to the Department of Motor Vehicles, and a failure to pay these taxes can invalidate the vehicle on the road. The DMV then takes these general excise taxes and uses them for things like transportation infrastructure. There are also sales and use taxes for rental vehicles and lease vehicles, but these are assessed separately.
Iowa Excise Tax
Sales taxes and income taxes aren't the only types of taxes that are charged in the state of Iowa. There are thousands of individual tax boards across the state, many of which operate independently. Taxes provide the funding for these entities which then direct the funds as needed.
Some products have unique taxes that are attributed to them. These are known as excise taxes and are generally charged at point-of-sale. Excise taxes in Iowa include:
Cigarette taxes. Cigarettes sold within the state of Iowa have a tax of $1.36 per package of 20 or $1.70 per package of 25. These taxes are distributed to the State General Fund and Health Care Trust Fund. It’s no secret that cigarettes can cause serious damage to an individual's health, so cigarettes are taxed to take care of the individuals who may fall ill due to smoking. Anyone who sells cigarettes within the state of Iowa will need to collect these taxes and then file a tax return reporting the taxes collected.
Alcohol taxes. Beer vendors must pay an additional $0.19 in taxes per gallon of beer sold. Wine vendors must pay $1.75 per gallon of wine sold. This is the 4th highest rate of wine taxation in the country. At $13.50 per gallon, the spirits tax in Iowa is also among the highest in the country. This is in addition to any federal excise taxes. Alcohol taxes generally go to health-related government expenses. However, alcohol taxes and tobacco taxes are often known as "sin taxes," where a secondary purpose of the tax is to discourage over-consumption.
Fuel taxes. As of July of 2019, gasoline had a tax rate of $0.305 per gallon. Diesel fuel had a tax rate of $0.325 a gallon. Fuel is used as a method of determining how much usage a vehicle is getting. Consequently, fuel taxes are used to repair the roads. The idea behind this is that the more fuel someone uses on the roads, the more they should pay towards improving those roads. However, car and truck fuel isn't the only fuel that's taxed: aviation-related fuel is taxed as well.
Water taxes. Before 2018, water sales in Iowa were subject to a 6% sales tax, the same tax as other goods that are sold in the state of Iowa. As of 2018, water sales are now subject to a 6% excise tax instead which controls where these taxes go. Rather than going into the general sales tax pool, water taxes now go to a water quality infrastructure fund and a water quality assistance fund.
Cell Phone taxes. Iowa has the 35th highest cell phone tax in the country, which means it's fairly low in terms of cell phone taxes. For each cell phone service line, about $7.91 is collected. These cell phone taxes are generally included within the cell phone bill under a fees or taxes section. The costs related to these taxes go directly to maintaining and improving upon the cell phone infrastructure. Cell Phone taxes are generally very high across the nation.
Gambling taxes. If someone wins money while gambling in Iowa, they are subject to Iowa state taxes. This is true even if they are not an Iowa resident, as the money was still "earned" within the state. However, losses can be deducted from winnings, so if someone has lost more than they've won through gambling they will not need to pay related taxes. Lottery winnings, prizes, and slot machines are all considered taxable income. If an individual wins a prize (such as a car), it is taxed at the market value for the item.
Franchise taxes. Financially-oriented businesses, such as banks, trusts, loans, and other financial institutions, will need to pay something known as franchise tax. Franchise tax is 5% of taxable income, which goes directly into the State General Fund. A franchise tax report will need to be filed monthly along with payments.
Most of Iowa's general excise taxes are lower than the national average, making Iowa a fairly affordable place to make many of these purchases. The exceptions are wine and liquor, which are taxed at 4th and 6th in the nation respectively. Some states allow for sales tax refunds, but getting a sales tax refund from Iowa is generally difficult.
Excise taxes are generally associated with controlled goods, or goods that may need to be supported in some way by the government. Most consumers aren't going to notice these types of flat taxes directly, but vendors who sell these types of goods will need to pay taxes to the government.
General excise tax forms may be filed monthly, quarterly, or annually depending on the type of excise tax and the amount of goods sold. A business will usually track their tax payments in their point-of-sale system.
Iowa's sales tax rates are largely in line with Iowa's wealth. Iowa is the 31st richest state in the United States and most of its taxes fall between the 25th and 35th highest. This means that Iowa's state taxes and sales taxes are generally affordable compared to their per capita income.
Iowa Insurance Tax
There is no longer a tax penalty on your federal or Iowa tax return for not having health insurance. However, you may want to consider enrolling in one of the many affordable healthcare options offered by the state to ensure that you receive the medical care you need.
Iowa Property Tax
Iowa's property taxes are determined on a per-county basis. However, the average property tax is 1.29%. This is a tax rate that is assessed annually based on the value of real property. Real property is exemptionsdefined as things such as single-family homes, multi-family units, commercial properties, agricultural properties, and other owned land.
Property taxes are used to improve upon the area that the property is located in. Higher property taxes generally add value to the surrounding area.
Like other states, property tax rates are assessed based on a property's value. There are "homestead" exemptions available for those who live in their own home, which can reduce the amount of value assessed. Property owners who believe that their assessments are incorrect can request to be reassessed. Property taxes can go up over time as property values increase.
Property tax assessment can be quite complicated, including budgets, assessments, and auditor calculations. In Iowa, property taxes are the 14th highest in the country. Property taxes are used for many public services, including public schools, highways, and community projects. Thus, the higher the property tax, the more services the property owners usually acquire.
Many individuals pay their property taxes through their mortgage company. Mortgage companies take over the payment of property taxes to avoid issues. When property taxes aren't paid, a lien can be filed against a property. Eventually, if the taxes aren't paid, a tax sale can be conducted. The property will be sold, the taxes will be recovered, and the remainder will be distributed to the prior owner.
This makes it exceptionally important for property owners to pay their taxes on time. If someone misses their property tax payments, they may be facing significant penalty fees. When selling a house, property tax needs to be paid off at the time of the sale. Generally, property tax is paid by the seller (though it can be arranged differently).
Iowa does not collect an estate tax, but it does impose the inheritance tax. An inheritance tax in Iowa is collected that can range from 5% to 15%, depending on the amount of money that's being inherited. Not all inherited money will be taxed; generally, a surviving spouse is not going to need to pay taxes based on their inheritance.
Often, proper estate planning can avoid inheritance tax, as inheritance tax only kicks in after a fairly large amount of money is inherited. Trust funds, for instance, can keep an inheritance within a separate entity until being distributed, saving recipients from having to pay a lot of taxes at once.
High net worth individuals should discuss inheritance and estate taxes with their financial adviser or a tax expert at Community Tax.
Iowa State Tax Credits
Tax credits are incentives offered by the government to directly reduce the amount you owe on your tax bill. Some commonly claimed Iowa state tax credits include:
Child and Dependent Care Tax Credit
Geothermal Heat Pump Tax Credit
Historic Preservation Tax Credit Program
Solar Energy System Tax Credit
Renewable Energy and Wind Energy Production Tax Credits
It is important to note that Iowa does not offer a state-level Child Tax Credit.
Iowa State Tax Exemptions and Deductions
Deductions reduce the amount of taxable income you must claim, which means you will have to pay less.
As of 2019, Iowa's standard deduction is $2,080 for single payers or married individuals filing separately. For married individuals filing jointly, the standard deduction is $5,120. However, you can also itemize your deductions. The deductions you can claim in Iowa could include:
Medical, dental, and insurance expenses
The School District Surtax
Emergency Medical Services Surtax
Vehicle registration fee deduction
Qualified mortgage insurance premiums
Expenses incurred for the care of a disabled relative
It is important to carefully check whether you meet the requirements for each exemption or deduction you are claiming to avoid severe penalties.
Discover more deductions -- speak to a tax pro today!
If you owe more than $200 in income taxes, you must pay an estimated tax when you file your Iowa state taxes. But how do I know how much I owe?
Using our free Iowa tax calculator can make figuring out how much you owe much easier. By calculating your estimated tax, you can prepare you finances to make sure you can afford your tax payments on time.
How to Pay Iowa Taxes
The state of Iowa advises that you pay your tax bill as soon as possible. The state of Iowa does not have a payment plan option.
You must always file a tax return even if you aren't able to pay anything just yet. There are separate fees for failing to file a return; filing a return is separate from putting in a payment.
If you do not pay your Iowa state income tax, a lien could be placed against your property. If the debt goes on long enough, it's possible that your assets may be levied or wages may be garnished to pay your state income tax.
Most people will pay their Iowa state income taxes at the same time that they pay their federal income taxes, but they aren't due at the same time.
Some taxes are going to need to be paid on an annual or semi-annual tax return. Others are paid at point-of-sale systems by consumers, while still others need to be paid directly to an entity such as the Department of Motor Vehicles. Regardless of the type of tax, taxes are often unavoidable and must be paid.
From state tax Iowa to general excise tax, taxes can be a complex topic with many answers. Whether you're an individual or a business, you may need advice regarding your Iowa state tax rate, the general Iowa tax rate, or how to pay your state taxes, we can help answer your questions!
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While many tax laws in Iowa are pretty run-of-the-mill, there are a few that are quite unusual:
Summary of Federal Taxes
While it might seem like a lot to keep track of just filing your state taxes, you’re also responsible for filing and paying your federal taxes first. Unlike state taxes, federal taxes are collected by the United States Internal Revenue Service.
Luckily, federal tax regulations are the same for everyone the U.S. so they’re typically a little more straightforward. Plus, we’re here to help if you need it!
Summary of Federal Taxes
Remember that Iowa state taxes are separate from federal state taxes, and that the Iowa tax brackets are different at a state level.
Call us to stress less and save more on your federal tax refund.
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