Fiscal Note
Fiscal Services Division
HF 264 – Income Tax Exemption, Service Workers (LSB1309YH)
Staff Contact: Jeff Robinson (515.281.4614) jeff.robinson@legis.iowa.gov
Fiscal Note Version – New
Description
House File 264 provides an individual income tax exemption for wages received by an individual
for services provided to an Iowa resident who has a physical or mental impairment that
substantially limits one or more major life activities. To be eligible for the exemption, the wages
must be received from a nonprofit, tax-exempt entity organized under Iowa Code chapter 504.
The change is effective beginning January 1, 2024.
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 that 50.0% (11,770) perform qualified disabled services care
through a nonprofit that 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.
• The Department assigned 11,770 random taxpayers represented in the micromodel who
reported similar annual wages for tax year 2021 and were between the ages of 25 and
55. The Department then calculated the income tax reduction that would result if the
wage income had been exempt.
• The model results are adjusted to account for persons who pay Iowa income tax through
income tax withholding or other means but do not file Iowa income tax returns and are
therefore not included as part of the micromodel’s dataset but will benefit from the
exemption through reduced income tax withholding.
• 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,
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 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.
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Fiscal Impact
The proposed disabled services worker income tax exemption is projected to reduce General
Fund revenue by the amounts listed in the right column of the following table. The General
Fund impact continues past FY 2028, increasing each year by the rate of growth in personal
service worker income earned by Iowa taxpayers.
Disabled Services Worker Income Exemption
In Millions
Income General Fund
Tax Revenue
Reduction Reduction
TY 2023 $ 0.0 FY 2023 $ 0.0
TY 2024 9.2 FY 2024 1.9
TY 2025 9.8 FY 2025 10.7
TY 2026 9.8 FY 2026 11.6
TY 2027 10.4 FY 2027 11.0
TY 2028 11.0 FY 2028 10.8
The statewide total received through local option income surtaxes for schools is projected to be
reduced by approximately $0.2 million each tax year. A school district that is not at its maximum
allowed surtax rate may choose to increase the surtax rate to maintain its annual surtax
revenue.
Source
Department of Revenue
/s/ Jennifer Acton
February 16, 2023
Doc ID 1369240
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