Bill Summary – FastDemocracy

Fiscal Note
                                       Fiscal Services Division
SF 2398 – Individual Income Tax, Property Tax, and State Funds (LSB5398SV)
Staff Contact: Eric Richardson (515.281.6767) eric.richardson@legis.iowa.gov
Fiscal Note Version – New
Description
Senate File 2398 decreases individual income tax rates beginning in tax year (TY) 2024. The
Bill does the following:
• Eliminates the bracketed individual income tax rates that go into effect in TY 2024 and
     TY 2025 and establishes flat individual income tax rates of 3.65% in TY 2024 and 3.50% for
     tax years beginning on or after January 1, 2025. Currently, a flat individual income tax rate
     of 3.90% is scheduled to go into effect beginning in TY 2026.
• Eliminates references to calculating the latest cumulative inflation factors in Iowa Code
     chapter 422 due to removing income tax brackets.
• Repeals the alternative individual income tax rates.
The Bill takes effect upon enactment and applies retroactively to tax years beginning on or after
January 1, 2024.
Background
Current individual income tax rates for TY 2024, TY 2025, and tax years beginning January 1,
2026, were set in 2022 Iowa Acts, House File 2317 (Income Tax Rate Reduction and
Exemptions Act). Figure 1 details current and proposed tax rates for single filers by tax year,
while Figure 2 details current and proposed tax rates for married filers by tax year.
                    Figure 1 — Individual Income Tax Rates (Single Filer)
                                       Current Law            Senate File 2398
      Income — Single Filer
                                TY 2024 TY 2025 TY 2026+ TY 2024 TY 2025 TY 2026+
     $0 to $6,210                4.40% 4.40%
     $6,210 to $31,050           4.82%            3.90%   3.65%         3.50%
                                         4.82%
     $31,050+                    5.70%
                  Figure 2 — Individual Income Tax Rates (Married Filers)
       Income — Married                Current Law            Senate File 2398
              Filers            TY 2024 TY 2025 TY 2026+ TY 2024 TY 2025 TY 2026+
     $0 to $12,420               4.40% 4.40%
     $12,420 to $62,100          4.82%            3.90%   3.65%         3.50%
                                         4.82%
     $62,100+                    5.70%
Assumptions
• The tax reduction estimate is based on income tax returns filed for TY 2022 and is time-
   adjusted for previously enacted State and federal law changes, as well as personal income
   and population changes that are projected to occur after the 2022 base tax year.
• Temporary federal law changes under the Tax Cut and Jobs Act of 2017 are assumed to
   expire after TY 2025. The Iowa individual income tax revisions under 2018 Iowa Acts,
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    Senate File 2417 (Income and Sales Tax Modification Act), and 2022 Iowa Acts, House File
    2317, are incorporated as current law for applicable years.
•   The Iowa withholding reduction effect is assumed to start April 2024, considering the time
    needed for employers to revise their withholding calculation. As a result, the majority impact
    of TY 2024 would be realized in FY 2025.
•   Tax year results are converted to fiscal year estimates using historical relationships between
    income tax withholding, estimate payments, tax refunds, and payments with filed tax returns.
•   The income surtax for schools is a local option tax that is based on a taxpayer’s Iowa
    income tax liability. Law changes that lower Iowa income tax liability also lower the amount
    of income surtax owed by any taxpayer subject to the surtax. For this projection, the surtax
    is assumed to equal 2.5% of State individual income tax liability.
Fiscal Impact
The individual income tax rate changes in Senate File 2398 are projected to decrease net
individual income tax liability and State General Fund revenue by the following amounts:
• FY 2024 = $279.3 million
• FY 2025 = $1,627.4 million
• FY 2026 = $901.3 million
• FY 2027 = $377.7 million
• FY 2028 = $385.2 million
• FY 2029 = $396.3 million
• FY 2030 = $408.0 million
The decrease in tax liability is also projected to decrease the statewide local option income
surtax for schools by the following amounts:
• FY 2024 = $0.0 million
• FY 2025 = $35.1 million
• FY 2026 = $28.8 million
• FY 2027 = $9.1 million
• FY 2028 = $9.4 million
• FY 2029 = $9.7 million
• FY 2030 = $9.9 million
Sources
Iowa Department of Revenue
Legislative Services Agency analysis
                                                                               /s/ Jennifer Acton
                                                                                 March 1, 2024
Doc ID 1447286
The fiscal note for this Bill was prepared pursuant to Joint Rule 17 and the Iowa Code. Data used in developing this
fiscal note is available from the Fiscal Services Division of the Legislative Services Agency upon request.
                                                 www.legis.iowa.gov
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Statutes affected: 
Introduced: 421.27, 422.36, 422.5, 422.16, 422.16B, 422.16C, 422.21