Fiscal Note
Fiscal Services Division
HF 2709 – Income Tax Exemption, Service Workers (LSB1309HV)
Staff Contact: Eric Richardson (515.281.6767) eric.richardson@legis.iowa.gov
Fiscal Note Version – New
Description
House File 2709 provides an individual income tax exemption for up to $10,000 in wages
received by a caretaker to an Iowa resident who has a physical or mental impairment that
substantially limits one or more major life activities. The change is effective beginning January
1, 2025, and applies to tax years beginning on or after January 1, 2025.
Assumptions
• The tax reduction estimate was completed by the Department of Revenue (Department)
using the individual income tax micromodel developed by the Department. The micromodel
is based on income tax returns filed for tax year (TY) 2021 and is time-adjusted for other
enacted State and federal law changes, as well as personal income and population changes
that are projected to occur after the base tax year. The Department incorporated the
following assumptions into the individual income tax micromodel:
• Information published (iowaworkforcedevelopment.gov/occupational-projections) by
Iowa Workforce Development indicates that there are 23,540 personal care aid workers
in Iowa. It is assumed 100.0% would qualify their wages for the income tax exemption.
• The annualized average entry-level wage is assumed to equal $24,000, and the
experienced worker annualized average wage is assumed to equal $33,000. It is
assumed the average wage is $30,000 statewide, approximately one-third of which
($10,000) may be exempted in the Bill.
• The micromodel produces results based on tax years. The Department converts tax year
results to fiscal year estimates using historical relationships between income tax withholding,
estimated 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 surtax
owed by any taxpayer subject to the surtax. For this projection, the surtax is assumed to
equal 2.4% of State income tax liability.
• Implementation of the new tax exemption will require rules to be adopted by the
Department. The Department will also experience additional monitoring and compliance
costs.
Fiscal Impact
The proposed deductions from the individual income tax in HF 2709 are projected to decrease
net individual income tax liability and State General Fund revenue by the following amounts:
• FY 2025 = $1.3 million
• FY 2026 = $7.7 million
• FY 2027 = $7.3 million
• FY 2028 = $7.2 million
• FY 2029 = $7.5 million
The statewide total received through local option income surtaxes for schools is projected to be
reduced by approximately $0.1 million each tax year. A school district that is not at its maximum
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allowed surtax rate may choose to increase the surtax rate to maintain its annual surtax
revenue.
Sources
Iowa Department of Revenue
Legislative Services Agency analysis
/s/ Jennifer Acton
April 19, 2024
Doc ID 1449556
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: 422.7