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 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.
  5 33 HF 2045
  5 34 mg:rj/es/25