House File 2045 - Reprinted HOUSE FILE BY COMMITTEE ON WAYS AND MEANS (SUCCESSOR TO HSB 502) Passed House, Date Passed Senate, Date Vote: Ayes Nays Vote: Ayes Nays Approved A BILL FOR 1 An Act relating to income taxation by providing for a senior 2 taxpayer income tax exclusion and phasing out the state income 3 tax on social security benefits and on pension and retirement 4 income and including effective and applicability date 5 provisions. 6 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA: 7 HF 2045 8 mg/es/25 PAG LIN 1 1 Section 1. Section 422.5, Code 2005, is amended by adding 1 2 the following new subsection: 1 3 NEW SUBSECTION. 2A. However, the tax shall not be imposed 1 4 on a resident or nonresident who is at least sixty=five years 1 5 old on December 31 of the tax year and whose net income, as 1 6 defined in section 422.7, is forty=eight thousand dollars or 1 7 less in the case of married persons filing jointly or filing 1 8 separately on a combined return, unmarried heads of household, 1 9 and surviving spouses or thirty=six thousand dollars or less 1 10 in the case of all other persons; but in the event that the 1 11 payment of tax under this division would reduce the net income 1 12 to less than forty=eight thousand dollars or thirty=six 1 13 thousand dollars as applicable, then the tax shall be reduced 1 14 to that amount which would result in allowing the taxpayer to 1 15 retain a net income of forty=eight thousand dollars or thirty= 1 16 six thousand dollars as applicable. The preceding sentence 1 17 does not apply to estates or trusts. For the purpose of this 1 18 subsection, the entire net income, including any part of the 1 19 net income not allocated to Iowa, shall be taken into account. 1 20 For purposes of this subsection, net income includes all 1 21 amounts of pensions or other retirement income received from 1 22 any source which is not taxable under this division as a 1 23 result of the government pension exclusions in section 422.7, 1 24 or any other state law. If the combined net income of a 1 25 husband and wife exceeds forty=eight thousand dollars, neither 1 26 of them shall receive the benefit of this subsection, and it 1 27 is immaterial whether they file a joint return or separate 1 28 returns. However, if a husband and wife file separate returns 1 29 and have a combined net income of forty=eight thousand dollars 1 30 or less, neither spouse shall receive the benefit of this 1 31 paragraph, if one spouse has a net operating loss and elects 1 32 to carry back or carry forward the loss as provided in section 1 33 422.9, subsection 3. A person who is claimed as a dependent 1 34 by another person as defined in section 422.12 shall not 1 35 receive the benefit of this subsection if the person claiming 2 1 the dependent has net income exceeding forty=eight thousand 2 2 dollars or thirty=six thousand dollars as applicable or the 2 3 person claiming the dependent and the person's spouse have 2 4 combined net income exceeding forty=eight thousand dollars or 2 5 thirty=six thousand dollars as applicable. 2 6 In addition, if the married persons', filing jointly or 2 7 filing separately on a combined return, unmarried head of 2 8 household's, or surviving spouse's net income exceeds forty= 2 9 eight thousand dollars, the regular tax imposed under this 2 10 division shall be the lesser of the maximum state individual 2 11 income tax rate times the portion of the net income in excess 2 12 of forty=eight thousand dollars or the regular tax liability 2 13 computed without regard to this sentence. Taxpayers electing 2 14 to file separately shall compute the alternate tax described 2 15 in this paragraph using the total net income of the husband 2 16 and wife. The alternate tax described in this paragraph does 2 17 not apply if one spouse elects to carry back or carry forward 2 18 the loss as provided in section 422.9, subsection 3. 2 19 This subsection applies even though one spouse has not 2 20 attained the age of sixty=five, if the other spouse is at 2 21 least sixty=five at the end of the tax year. 2 22 Sec. 2. Section 422.5, subsection 7, Code 2005, is amended 2 23 to read as follows: 2 24 7. In addition to the other taxes imposed by this section, 2 25 a tax is imposed on the amount of a lump sum distribution for 2 26 which the taxpayer has elected under section 402(e) of the 2 27 Internal Revenue Code to be separately taxed for federal 2 28 income tax purposes for the tax year. The rate of tax is 2 29 equal to twenty=five percent of the separate federal tax 2 30 imposed on the amount of the lump sum distribution. A 2 31 nonresident is liable for this tax only on that portion of the 2 32 lump sum distribution allocable to Iowa. The total amount of 2 33 the lump sum distribution subject to separate federal tax 2 34 shall be included in net income for purposes of determining 2 35 eligibility underthe thirteen thousand five hundred dollar or3 1 less or nine thousand dollar or less exclusion, as applicable3 2 subsections 2 and 2A. 3 3 Sec. 3. Section 422.7, subsection 13, Code Supplement 3 4 2005, is amended to read as follows: 3 5 13. a. Subtract, to the extent included, the amount of 3 6 additional social security benefits taxable under the Internal 3 7 Revenue Code for tax years beginning on or after January 1, 3 8 1994, but before January 1, 2011. The amount of social 3 9 security benefits taxable as provided in section 86 of the 3 10 Internal Revenue Code, as amended up to and including January 3 11 1, 1993, continues to apply for state income tax purposes for 3 12 tax years beginning on or after January 1, 1994, but before 3 13 January 1, 2011. 3 14 b. (1) For tax years beginning in the 2007 calendar year, 3 15 subtract, to the extent included, twenty percent of taxable 3 16 social security benefits remaining after the subtraction in 3 17 paragraph "a". 3 18 (2) For tax years beginning in the 2008 calendar year, 3 19 subtract, to the extent included, forty percent of taxable 3 20 social security benefits remaining after the subtraction in 3 21 paragraph "a". 3 22 (3) For tax years beginning in the 2009 calendar year, 3 23 subtract, to the extent included, sixty percent of taxable 3 24 social security benefits remaining after the subtraction in 3 25 paragraph "a". 3 26 (4) For tax years beginning in the 2010 calendar year, 3 27 subtract, to the extent included, eighty percent of taxable 3 28 social security benefits remaining after the subtraction in 3 29 paragraph "a". 3 30 c. Married taxpayers, who file a joint federal income tax 3 31 return and who elect to file separate returns or who elect 3 32 separate filing on a combined return for state income tax 3 33 purposes, shall allocate between the spouses the amount of 3 34 benefits subtracted under paragraphs "a" and "b" from net 3 35 income in the ratio of the social security benefits received 4 1 by each spouse to the total of these benefits received by both 4 2 spouses. 4 3 d. For tax years beginning on or after January 1, 2011, 4 4 subtract, to the extent included, the amount of social 4 5 security benefits taxable under section 86 of the Internal 4 6 Revenue Code. 4 7 Sec. 4. Section 422.7, subsection 31, Code Supplement 4 8 2005, is amended to read as follows: 4 9 31. a. For a person who is disabled, or is fifty=five 4 10 years of age or older, or is the surviving spouse of an 4 11 individual or a survivor having an insurable interest in an 4 12 individual who would have qualified for the exemption under 4 13 this subsection for the tax year, subtract, to the extent 4 14 included, the total amount of a governmental or other pension 4 15 or retirement pay, including, but not limited to, defined 4 16 benefit or defined contribution plans, annuities, individual 4 17 retirement accounts, plans maintained or contributed to by an 4 18 employer, or maintained or contributed to by a self=employed 4 19 person as an employer, and deferred compensation plans or any 4 20 earnings attributable to the deferred compensation plans, up 4 21 to a maximum of six thousand dollars for a person, other than 4 22 a husband or wife, who files a separate state income tax 4 23 return and up to a maximum of twelve thousand dollars for a 4 24 husband and wife who file a joint state income tax return. 4 25 However, a surviving spouse who is not disabled or fifty=five 4 26 years of age or older can only exclude the amount of pension 4 27 or retirement pay received as a result of the death of the 4 28 other spouse. A husband and wife filing separate state income 4 29 tax returns or separately on a combined state return are 4 30 allowed a combined maximum exclusion under this subsection of 4 31 up to twelve thousand dollars. The twelve thousand dollar 4 32 exclusion shall be allocated to the husband or wife in the 4 33 proportion that each spouse's respective pension and 4 34 retirement pay received bears to total combined pension and 4 35 retirement pay received. 5 1 b. For the tax year beginning January 1, 2007, subtract an 5 2 amount equal to twenty percent of the income described in 5 3 paragraph "a" after the exclusion in paragraph "a" is 5 4 subtracted. 5 5 c. For the tax year beginning January 1, 2008, subtract an 5 6 amount equal to forty percent of the income described in 5 7 paragraph "a" after the exclusion in paragraph "a" is 5 8 subtracted. 5 9 d. For the tax year beginning January 1, 2009, subtract an 5 10 amount equal to sixty percent of the income described in 5 11 paragraph "a" after the exclusion in paragraph "a" is 5 12 subtracted. 5 13 e. For the tax year beginning January 1, 2010, subtract an 5 14 amount equal to eighty percent of the income described in 5 15 paragraph "a" after the exclusion in paragraph "a" is 5 16 subtracted. 5 17 f. For tax years beginning on or after January 1, 2011, 5 18 subtract the total amount of the income described in paragraph 5 19 "a". 5 20 g. For a husband and wife filing separate state income tax 5 21 returns or separately on a combined state return, the 5 22 additional exclusion in paragraphs "b" through "f" shall be 5 23 allocated to the husband or wife in the proportion that each 5 24 spouse's respective pension and retirement pay received bears 5 25 to total combined pension and retirement pay received. 5 26 Sec. 5. EFFECTIVE AND APPLICABILITY DATE PROVISIONS. The 5 27 sections of this Act enacting section 422.5, subsection 2A, 5 28 and amending section 422.5, subsection 7, take effect January 5 29 1, 2008, and apply to tax years beginning on or after that 5 30 date. The sections of this Act amending section 422.7, 5 31 subsections 13 and 31, take effect January 1, 2007, and apply 5 32 to tax years beginning on or after that date. 5 33 HF 2045 5 34 mg:rj/es/25