Bill Text: IA SF37 | 2021-2022 | 89th General Assembly | Introduced

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Bill Title: A bill for an act relating to the exclusion of retirement income from the computation of the individual income tax including providing an exclusion for the federal civil service retirement system, and phasing in an exclusion of other retirement income, and including retroactive applicability provisions.

Spectrum: Partisan Bill (Republican 1-0)

Status: (Introduced - Dead) 2021-01-13 - Subcommittee: Dawson, Dotzler, and Goodwin. S.J. 97. [SF37 Detail]

Download: Iowa-2021-SF37-Introduced.html

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Senate File 37 - Introduced
SENATE FILE 37
BY ZAUN
A BILL FOR
An Act relating to the exclusion of retirement income from the
computation of the individual income tax including providing
an exclusion for the federal civil service retirement
system, and phasing in an exclusion of other retirement
income, and including retroactive applicability provisions.
BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA:
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Section 1. Section 422.5, subsection 3, paragraph a, Code
2021, is amended to read as follows:
a. The tax shall not be imposed on a resident or nonresident
whose net income, as defined in section 422.7 , is thirteen
thousand five hundred dollars or less in the case of married
persons filing jointly or filing separately on a combined
return, heads of household, and surviving spouses or nine
thousand dollars or less in the case of all other persons; but
in the event that the payment of tax under this subchapter
would reduce the net income to less than thirteen thousand five
hundred dollars or nine thousand dollars as applicable, then
the tax shall be reduced to that amount which would result
in allowing the taxpayer to retain a net income of thirteen
thousand five hundred dollars or nine thousand dollars as
applicable. The preceding sentence does not apply to estates
or trusts. For the purpose of this subsection , the entire net
income, including any part of the net income not allocated
to Iowa, shall be taken into account. For purposes of this
subsection , net income includes all amounts of pensions or
other retirement income, except for military retirement pay
excluded under section 422.7, subsection 31A , paragraph “a” , or
section 422.7, subsection 31B , paragraph “a” , received from any
source which is not taxable under this subchapter as a result
of the government pension exclusions in section 422.7 , or any
other state law. If the combined net income of a husband and
wife exceeds thirteen thousand five hundred dollars, neither
of them shall receive the benefit of this subsection , and it
is immaterial whether they file a joint return or separate
returns. However, if a husband and wife file separate returns
and have a combined net income of thirteen thousand five
hundred dollars or less, neither spouse shall receive the
benefit of this paragraph, if one spouse has a net operating
loss and elects to carry back or carry forward the loss as
provided in section 422.9, subsection 3 . A person who is
claimed as a dependent by another person as defined in section
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S.F. 37
422.12 shall not receive the benefit of this subsection if
the person claiming the dependent has net income exceeding
thirteen thousand five hundred dollars or nine thousand dollars
as applicable or the person claiming the dependent and the
person’s spouse have combined net income exceeding thirteen
thousand five hundred dollars or nine thousand dollars as
applicable.
Sec. 2. Section 422.5, subsection 3, Code 2021, is amended
by adding the following new paragraph:
NEW PARAGRAPH . c. (1) For purposes of this subsection,
net income includes all amounts of pensions or other retirement
income, except for military retirement pay excluded under
section 422.7, subsection 31A, paragraph “a” , or section 422.7,
subsection 31B, paragraph “a” , or retirement income excluded
under section 422.7, subsection 31C, and except for retirement
income excluded under section 422.7, subsection 31D, paragraph
“a” , received from any source which is not taxable under this
subchapter as a result of the government pension exclusions in
section 422.7, or any other state law.
(2) This paragraph “c” is repealed January 1, 2025.
Sec. 3. Section 422.5, subsection 3B, paragraph a, Code
2021, is amended to read as follows:
a. The tax shall not be imposed on a resident or nonresident
who is at least sixty-five years old on December 31 of
the tax year and whose net income, as defined in section
422.7 , is thirty-two thousand dollars or less in the case
of married persons filing jointly or filing separately on a
combined return, heads of household, and surviving spouses or
twenty-four thousand dollars or less in the case of all other
persons; but in the event that the payment of tax under this
subchapter would reduce the net income to less than thirty-two
thousand dollars or twenty-four thousand dollars as applicable,
then the tax shall be reduced to that amount which would result
in allowing the taxpayer to retain a net income of thirty-two
thousand dollars or twenty-four thousand dollars as applicable.
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The preceding sentence does not apply to estates or trusts.
For the purpose of this subsection , the entire net income,
including any part of the net income not allocated to Iowa,
shall be taken into account. For purposes of this subsection ,
net income includes all amounts of pensions or other retirement
income, except for military retirement pay excluded under
section 422.7, subsection 31A , paragraph “a” , or section 422.7,
subsection 31B , paragraph “a” , received from any source which is
not taxable under this subchapter as a result of the government
pension exclusions in section 422.7 , or any other state law.
If the combined net income of a husband and wife exceeds
thirty-two thousand dollars, neither of them shall receive the
benefit of this subsection , and it is immaterial whether they
file a joint return or separate returns. However, if a husband
and wife file separate returns and have a combined net income
of thirty-two thousand dollars or less, neither spouse shall
receive the benefit of this paragraph, if one spouse has a net
operating loss and elects to carry back or carry forward the
loss as provided in section 422.9, subsection 3 . A person
who is claimed as a dependent by another person as defined in
section 422.12 shall not receive the benefit of this subsection
if the person claiming the dependent has net income exceeding
thirty-two thousand dollars or twenty-four thousand dollars
as applicable or the person claiming the dependent and the
person’s spouse have combined net income exceeding thirty-two
thousand dollars or twenty-four thousand dollars as applicable.
Sec. 4. Section 422.5, subsection 3B, Code 2021, is amended
by adding the following new paragraph:
NEW PARAGRAPH . d. (1) For purposes of this subsection,
net income includes all amounts of pensions or other retirement
income, except for military retirement pay excluded under
section 422.7, subsection 31A, paragraph “a” , or retirement
income excluded under section 422.7, subsection 31B, paragraph
“a” , or retirement income excluded under section 422.7,
subsection 31C, and except for retirement income excluded under
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S.F. 37
section 422.7, subsection 31D, paragraph “a” , received from any
source which is not taxable under this subchapter as a result
of the government pension exclusions in section 422.7, or any
other state law.
(2) This paragraph “d” is repealed January 1, 2025.
Sec. 5. Section 422.7, subsection 31, Code 2021, is amended
to read as follows:
31. a. For a person who is disabled, or is fifty-five
years of age or older, or is the surviving spouse of an
individual or a survivor having an insurable interest in an
individual who would have qualified for the exemption under
this subsection for the tax year, subtract, to the extent
included, the total amount of a governmental or other pension
or retirement pay, including, but not limited to, defined
benefit or defined contribution plans, annuities, individual
retirement accounts, plans maintained or contributed to by an
employer, or maintained or contributed to by a self-employed
person as an employer, and deferred compensation plans or any
earnings attributable to the deferred compensation plans, up
to a maximum of six thousand dollars for a person, other than a
husband or wife, who files a separate state income tax return
and up to a maximum of twelve thousand dollars for a husband
and wife who file a joint state income tax return. However, a
surviving spouse who is not disabled or fifty-five years of age
or older can only exclude the amount of pension or retirement
pay received as a result of the death of the other spouse. A
husband and wife filing separate state income tax returns or
separately on a combined state return are allowed a combined
maximum exclusion under this subsection of up to twelve
thousand dollars. The twelve thousand dollar exclusion shall
be allocated to the husband or wife in the proportion that each
spouse’s respective pension and retirement pay received bears
to total combined pension and retirement pay received.
b. This subsection is repealed January 1, 2025.
Sec. 6. Section 422.7, subsection 31A, Code 2021, is amended
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by adding the following new paragraph:
NEW PARAGRAPH . c. This subsection is repealed January 1,
2025.
Sec. 7. Section 422.7, subsection 31B, Code 2021, is amended
by adding the following new paragraph:
NEW PARAGRAPH . c. This subsection is repealed January 1,
2025.
Sec. 8. Section 422.7, Code 2021, is amended by adding the
following new subsections:
NEW SUBSECTION . 31C. a. Subtract, to the extent included,
retirement income received by a taxpayer from the federal civil
service retirement system.
b. Subtract, to the extent included, amounts received as
survivor benefits by a taxpayer from the federal civil service
system.
c. The exclusion of retirement income under this subsection
is in addition to any exclusion provided under subsection 31.
d. This subsection is repealed on January 1, 2025.
NEW SUBSECTION . 31D. a. (1) For tax years beginning
in the 2021 calendar year, subtract, to the extent included,
twenty percent of retirement income received by a taxpayer
remaining after the subtractions in subsections 31, 31A, 31B,
and 31C.
(2) For tax years beginning in the 2022 calendar year,
subtract, to the extent included, forty percent of retirement
income received by a taxpayer remaining after the subtractions
in subsections 31, 31A, 31B, and 31C.
(3) For tax years beginning in the 2023 calendar year,
subtract, to the extent included, sixty percent of retirement
income received by a taxpayer remaining after the subtractions
in subsections 31, 31A, 31B, and 31C.
(4) For tax years beginning in the 2024 calendar year,
subtract, to the extent included, eighty percent of retirement
income received by a taxpayer remaining after the subtractions
in subsections 31, 31A, 31B, and 31C.
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(5) This paragraph “a” is repealed on January 1, 2025.
b. For tax years beginning on or after January 1, 2025,
subtract, to the extent included, retirement income received
by a taxpayer.
c. For purposes of this subsection, “retirement income”
means a governmental or other pension or retirement pay,
including but not limited to defined benefit or defined
contribution plans, annuities, individual retirement accounts,
plans maintained or contributed to by an employer, or
maintained or contributed to by a self-employed person as an
employer, and deferred compensation plans or any earnings
attributable to the deferred compensation plans.
Sec. 9. RETROACTIVE APPLICABILITY. This Act applies
retroactively to January 1, 2021, for tax years beginning on
or after that date.
EXPLANATION
The inclusion of this explanation does not constitute agreement with
the explanation’s substance by the members of the general assembly.
This bill relates to the exclusion of retirement income from
the computation of net income for purposes of the individual
income tax.
The bill excludes from the individual income tax all
retirement income received by an individual from the federal
civil service retirement system and survivor benefits received
from such system.
The bill phases in over a five-year period the complete
exclusion from the individual income tax of a taxpayer’s
retirement income remaining after the exclusions referenced
above. The percentage of this retirement income that is
excluded for tax years beginning in 2021, 2022, 2023, and
2024, is 20 percent, 40 percent, 60 percent, and 80 percent,
respectively. For tax years beginning in 2025 or later, 100
percent of a taxpayer’s retirement income will be excluded from
the individual income tax.
The bill also excludes this retirement income from the
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calculation of net income for purposes of determining whether
or not a taxpayer’s net income exceeds the amount at which the
individual income tax will not be imposed pursuant to Code
section 422.5(3) or Code section 422.5(3B), and for which an
individual income tax return is not required to be filed, and
for purposes of calculating the alternate tax in Code section
422.5, and further provides that any retirement income excluded
from the individual income tax will not be added back to these
calculations for tax years beginning in 2025 or later.
The bill defines “retirement income” for purposes of the
exclusion.
Under current law, a taxpayer may exclude all retirement
pay, including certain survivor benefits, received from the
federal government for military service performed in the armed
forces, the armed forces military reserve, or national guard.
In addition, a taxpayer who is disabled, who is at least 55
years of age, or who is the surviving spouse or other specified
survivor of that qualifying taxpayer, may exclude a maximum
of $6,000 of other retirement income ($12,000 for married
couples).
The bill applies retroactively to January 1, 2021, for tax
years beginning on or after that date.
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