2023 Iowa Tax Changes

Iowa is instituting significant changes in the way individual income taxes are calculated beginning in tax year 2023. The Iowa Department of Revenue has posted a summary page of the changes. We will note some of the more impactful and widespread changes below. These changes are for the tax return you file this year.

  • The individual income tax forms have been completely revised
  • The starting point for calculating Iowa taxable income will be federal taxable income
  • You must use the same filing status for Iowa as you do on your federal return
  • Iowa no longer allows a deduction for federal taxes paid (a transitional rule is in effect for 2023)
  • Most taxpayers can no longer deduct their after-tax health insurance premiums
  • Iowa will no longer tax most types of retirement income
  • Most of the former capital gain exclusions are eliminated
  • Excluded retirement income may include farm lease payments (see Elections below)

Elections for retired farmers

The individual income tax brackets are being consolidated and the top rates reduced over a four year period, as shown in the table below. The upper and lower limits of the income tax brackets double for married taxpayers who file a joint return.

Income Tax BracketsRates
Lower LimitUpper LimitTY 2023TY 2024TY 2025TY 2026
$75,001And Over6.00%5.70%4.82%3.90%
NOTE: Brackets double for Married Filing Jointly

The consolidation of tax brackets, combined with the use of federal taxable income as a starting point, will significantly impact Iowa’s individual income taxes this year. As with any tax changes, there will be both “winners” and “losers” compared to the previous taxing regime.

Starting with federal taxable income means a much larger standard deduction than in prior years. This huge deduction increase will sharply reduce the number of taxpayers who will itemize deductions on their Iowa returns. In our firm in 2022, only 9.55% of Iowa filers itemized deductions on their federal return but 51.62% filed the Iowa itemized deduction form. That Iowa form will no longer be necessary in 2023.

The reduction of the top tax rate from 8.53% in 2022 to 6.00% in 2023 will reduce the tax burden for some higher-income filers. It is unclear how the reduction in the number of tax brackets from nine to four will affect low- and middle-income taxpayers this year.

2019 Iowa Tax Changes