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:
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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 under the thirteen thousand five hundred dollar or
3 1 less or nine thousand dollar or less exclusion, as applicable
3 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.
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