Bill Text: IA SF34 | 2017-2018 | 87th General Assembly | Introduced
Bill Title: A bill for an act providing an exemption from the computation of the individual income tax of certain amounts of retirement income and including retroactive applicability provisions.
Spectrum: Partisan Bill (Republican 1-0)
Status: (Introduced - Dead) 2017-02-13 - Fiscal note. [SF34 Detail]
Download: Iowa-2017-SF34-Introduced.html
Senate File 34 - Introduced SENATE FILE BY ZAUN A BILL FOR 1 An Act providing an exemption from the computation of the 2 individual income tax of certain amounts of retirement 3 income and including retroactive applicability provisions. 4 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA: TLSB 1238XS (3) 87 mm/sc PAG LIN 1 1 Section 1. Section 422.5, subsection 3, paragraph a, Code 1 2 2017, is amended to read as follows: 1 3 a. The tax shall not be imposed on a resident or nonresident 1 4 whose net income, as defined in section 422.7, is thirteen 1 5 thousand five hundred dollars or less in the case of married 1 6 persons filing jointly or filing separately on a combined 1 7 return, heads of household, and surviving spouses or nine 1 8 thousand dollars or less in the case of all other persons; 1 9 but in the event that the payment of tax under this division 1 10 would reduce the net income to less than thirteen thousand five 1 11 hundred dollars or nine thousand dollars as applicable, then 1 12 the tax shall be reduced to that amount which would result 1 13 in allowing the taxpayer to retain a net income of thirteen 1 14 thousand five hundred dollars or nine thousand dollars as 1 15 applicable. The preceding sentence does not apply to estates 1 16 or trusts. For the purpose of this subsection, the entire net 1 17 income, including any part of the net income not allocated 1 18 to Iowa, shall be taken into account.For purposes of this 1 19 subsection, net income includes all amounts of pensions or 1 20 other retirement income, except for military retirement pay 1 21 excluded under section 422.7, subsection 31A, paragraph "a", 1 22 or section 422.7, subsection 31B, paragraph "a", received from 1 23 any source which is not taxable under this division as a result 1 24 of the government pension exclusions in section 422.7, or any 1 25 other state law.If the combined net income of a husband and 1 26 wife exceeds thirteen thousand five hundred dollars, neither 1 27 of them shall receive the benefit of this subsection, and it 1 28 is immaterial whether they file a joint return or separate 1 29 returns. However, if a husband and wife file separate returns 1 30 and have a combined net income of thirteen thousand five 1 31 hundred dollars or less, neither spouse shall receive the 1 32 benefit of this paragraph, if one spouse has a net operating 1 33 loss and elects to carry back or carry forward the loss as 1 34 provided in section 422.9, subsection 3. A person who is 1 35 claimed as a dependent by another person as defined in section 2 1 422.12 shall not receive the benefit of this subsection if 2 2 the person claiming the dependent has net income exceeding 2 3 thirteen thousand five hundred dollars or nine thousand dollars 2 4 as applicable or the person claiming the dependent and the 2 5 person's spouse have combined net income exceeding thirteen 2 6 thousand five hundred dollars or nine thousand dollars as 2 7 applicable. 2 8 Sec. 2. Section 422.5, subsection 3, Code 2017, is amended 2 9 by adding the following new paragraph: 2 10 NEW PARAGRAPH. c. (1) For purposes of this subsection, 2 11 net income includes all amounts of pensions or other retirement 2 12 income, except for military retirement pay excluded under 2 13 section 422.7, subsection 31A, paragraph "a", or section 422.7, 2 14 subsection 31B, paragraph "a", and except for retirement income 2 15 excluded under section 422.7, subsection 31C, received from any 2 16 source which is not taxable under this division as a result 2 17 of the government pension exclusions in section 422.7, or any 2 18 other state law. 2 19 (2) This paragraph "c" is repealed January 1, 2021. 2 20 Sec. 3. Section 422.5, subsection 3B, paragraph a, Code 2 21 2017, is amended to read as follows: 2 22 a. The tax shall not be imposed on a resident or nonresident 2 23 who is at least sixty=five years old on December 31 of 2 24 the tax year and whose net income, as defined in section 2 25 422.7, is thirty=two thousand dollars or less in the case 2 26 of married persons filing jointly or filing separately on a 2 27 combined return, heads of household, and surviving spouses or 2 28 twenty=four thousand dollars or less in the case of all other 2 29 persons; but in the event that the payment of tax under this 2 30 division would reduce the net income to less than thirty=two 2 31 thousand dollars or twenty=four thousand dollars as applicable, 2 32 then the tax shall be reduced to that amount which would result 2 33 in allowing the taxpayer to retain a net income of thirty=two 2 34 thousand dollars or twenty=four thousand dollars as applicable. 2 35 The preceding sentence does not apply to estates or trusts. 3 1 For the purpose of this subsection, the entire net income, 3 2 including any part of the net income not allocated to Iowa, 3 3 shall be taken into account.For purposes of this subsection, 3 4 net income includes all amounts of pensions or other retirement 3 5 income, except for military retirement pay excluded under 3 6 section 422.7, subsection 31A, paragraph "a", or section 422.7, 3 7 subsection 31B, paragraph "a", received from any source which is 3 8 not taxable under this division as a result of the government 3 9 pension exclusions in section 422.7, or any other state law.3 10 If the combined net income of a husband and wife exceeds 3 11 thirty=two thousand dollars, neither of them shall receive the 3 12 benefit of this subsection, and it is immaterial whether they 3 13 file a joint return or separate returns. However, if a husband 3 14 and wife file separate returns and have a combined net income 3 15 of thirty=two thousand dollars or less, neither spouse shall 3 16 receive the benefit of this paragraph, if one spouse has a net 3 17 operating loss and elects to carry back or carry forward the 3 18 loss as provided in section 422.9, subsection 3. A person 3 19 who is claimed as a dependent by another person as defined in 3 20 section 422.12 shall not receive the benefit of this subsection 3 21 if the person claiming the dependent has net income exceeding 3 22 thirty=two thousand dollars or twenty=four thousand dollars 3 23 as applicable or the person claiming the dependent and the 3 24 person's spouse have combined net income exceeding thirty=two 3 25 thousand dollars or twenty=four thousand dollars as applicable. 3 26 Sec. 4. Section 422.5, subsection 3B, Code 2017, is amended 3 27 by adding the following new paragraph: 3 28 NEW PARAGRAPH. d. (1) For purposes of this subsection, 3 29 net income includes all amounts of pensions or other retirement 3 30 income, except for military retirement pay excluded under 3 31 section 422.7, subsection 31A, paragraph "a", or section 422.7, 3 32 subsection 31B, paragraph "a", and except for retirement income 3 33 excluded under section 422.7, subsection 31C, received from any 3 34 source which is not taxable under this division as a result 3 35 of the government pension exclusions in section 422.7, or any 4 1 other state law. 4 2 (2) This paragraph "d" is repealed January 1, 2021. 4 3 Sec. 5. Section 422.7, subsection 31, Code 2017, is amended 4 4 to read as follows: 4 5 31. a. For a person who is disabled, or is fifty=five 4 6 years of age or older, or is the surviving spouse of an 4 7 individual or a survivor having an insurable interest in an 4 8 individual who would have qualified for the exemption under 4 9 this subsection for the tax year, subtract, to the extent 4 10 included, the total amount of a governmental or other pension 4 11 or retirement pay, including, but not limited to, defined 4 12 benefit or defined contribution plans, annuities, individual 4 13 retirement accounts, plans maintained or contributed to by an 4 14 employer, or maintained or contributed to by a self=employed 4 15 person as an employer, and deferred compensation plans or any 4 16 earnings attributable to the deferred compensation plans, up 4 17 to a maximum of six thousand dollars for a person, other than a 4 18 husband or wife, who files a separate state income tax return 4 19 and up to a maximum of twelve thousand dollars for a husband 4 20 and wife who file a joint state income tax return. However, a 4 21 surviving spouse who is not disabled or fifty=five years of age 4 22 or older can only exclude the amount of pension or retirement 4 23 pay received as a result of the death of the other spouse. A 4 24 husband and wife filing separate state income tax returns or 4 25 separately on a combined state return are allowed a combined 4 26 maximum exclusion under this subsection of up to twelve 4 27 thousand dollars. The twelve thousand dollar exclusion shall 4 28 be allocated to the husband or wife in the proportion that each 4 29 spouse's respective pension and retirement pay received bears 4 30 to total combined pension and retirement pay received. 4 31 b. This subsection is repealed January 1, 2021. 4 32 Sec. 6. Section 422.7, subsection 31A, Code 2017, is amended 4 33 by adding the following new paragraph: 4 34 NEW PARAGRAPH. c. This section is repealed January 1, 2021. 4 35 Sec. 7. Section 422.7, subsection 31B, Code 2017, is amended 5 1 by adding the following new paragraph: 5 2 NEW PARAGRAPH. c. This subsection is repealed January 1, 5 3 2021. 5 4 Sec. 8. Section 422.7, Code 2017, is amended by adding the 5 5 following new subsection: 5 6 NEW SUBSECTION. 31C. a. (1) For tax years beginning 5 7 in the 2017 calendar year, subtract, to the extent included, 5 8 twenty percent of retirement income received by a taxpayer 5 9 remaining after the subtractions in subsections 31, 31A, and 5 10 31B. 5 11 (2) For tax years beginning in the 2018 calendar year, 5 12 subtract, to the extent included, forty percent of retirement 5 13 income received by a taxpayer remaining after the subtractions 5 14 in subsections 31, 31A, and 31B. 5 15 (3) For tax years beginning in the 2019 calendar year, 5 16 subtract, to the extent included, sixty percent of retirement 5 17 income received by a taxpayer remaining after the subtractions 5 18 in subsections 31, 31A, and 31B. 5 19 (4) For tax years beginning in the 2020 calendar year, 5 20 subtract, to the extent included, eighty percent of retirement 5 21 income received by a taxpayer remaining after the subtractions 5 22 in subsections 31, 31A, and 31B. 5 23 (5) For tax years beginning on or after January 1, 2021, 5 24 subtract, to the extent included, retirement income received 5 25 by a taxpayer. 5 26 b. For purposes of this subsection, "retirement income" 5 27 means a governmental or other pension or retirement pay, 5 28 including but not limited to defined benefit or defined 5 29 contribution plans, annuities, individual retirement accounts, 5 30 plans maintained or contributed to by an employer, or 5 31 maintained or contributed to by a self=employed person as an 5 32 employer, and deferred compensation plans or any earnings 5 33 attributable to the deferred compensation plans. "Retirement 5 34 income" includes amounts received as survivor benefits by a 5 35 taxpayer from the federal government pursuant to 10 U.S.C 6 1 {1447, et seq. 6 2 Sec. 9. RETROACTIVE APPLICABILITY. This Act applies 6 3 retroactively to January 1, 2017, for tax years beginning on 6 4 or after that date. 6 5 EXPLANATION 6 6 The inclusion of this explanation does not constitute agreement with 6 7 the explanation's substance by the members of the general assembly. 6 8 This bill relates to the exclusion of retirement income from 6 9 the computation of net income for purposes of the individual 6 10 income tax. 6 11 Under current law, a taxpayer may exclude all retirement 6 12 pay, including certain survivor benefits, received from the 6 13 federal government for military service performed in the armed 6 14 forces, the armed forces military reserve, or national guard. 6 15 In addition, a taxpayer who is disabled, who is at least 55 6 16 years of age, or who is the surviving spouse or other specified 6 17 survivor of that qualifying taxpayer, may exclude a maximum 6 18 of $6,000 of other retirement income ($12,000 for married 6 19 couples). 6 20 The bill phases in over a five=year period the complete 6 21 exclusion from the individual income tax of a taxpayer's 6 22 retirement income remaining after the two exclusions referenced 6 23 above. The percentage of this retirement income that is 6 24 excluded for tax years beginning in 2017, 2018, 2019, and 6 25 2020, is 20 percent, 40 percent, 60 percent, and 80 percent, 6 26 respectively. For tax years beginning in 2021 or later, 100 6 27 percent of a taxpayer's retirement income will be excluded from 6 28 the individual income tax. 6 29 The bill also excludes this retirement income from the 6 30 calculation of net income for purposes of determining whether 6 31 or not a taxpayer's net income exceeds the amount at which the 6 32 individual income tax will not be imposed pursuant to Code 6 33 section 422.5(3) or Code section 422.5(3B), and for which an 6 34 individual income tax return is not required to be filed, and 6 35 for purposes of calculating the alternate tax in Code section 7 1 422.5, and further provides that any retirement income excluded 7 2 from the individual income tax will not be added back to these 7 3 calculations for tax years beginning in 2021 or later. 7 4 The bill defines "retirement income" for purposes of the 7 5 exclusion. 7 6 The bill applies retroactively to January 1, 2017, for tax 7 7 years beginning on or after that date. 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