The taxation of retirement benefits in Iowa differs from federal tax law in several significant ways. Here’s a rundown:
Social Security Benefits
Up until 2013, Iowa taxed Social Security benefits using a different formula from the one used on federal tax returns. Starting in 2014, Social Security benefits are NOT taxable at all in Iowa.
However, taxpayers still must account for Social Security benefits because the benefits are includable in calculations relating to the low-income exemption and the alternate tax*.
(*-Note: the Iowa alternate tax is NOT the same thing as the alternative minimum tax. Iowa alternate tax is an alternative tax calculation that may — especially for people over age 65 — reduce the amount of tax owed. This is a discussion for another blog post on another day.)
Railroad Retirement Benefits
Railroad Retirement benefits have always been 100% excluded from taxation in Iowa, but as with Social Security benefits, taxpayers must account for these benefits in calculations relating to the low-income exemption and the alternate tax.
Iowa does not tax military pensions at all. Military pensions are also not included in the calculations for the low-income exemption or alternate tax.
Regular Pensions and 401(k)/IRA Withdrawals
Other retirement benefits and withdrawals are taxable in Iowa. Taxpayers over age 55 can exclude up to $6,000 of this income (if single) or $12,000 (if married). Amounts excluded from taxation under the $6,000/$12,000 rule must still be included in the calculations for the low-income exemption and alternate tax.
“This blog post, along with comments that may follow, should not be considered tax advice. Before you make final tax or financial decisions, please secure a professional tax advisor to give you advice about your unique situation. To secure Jason as your accountant, please click on the ‘Services’ link at the top of the page.”