Four bills focus on income taxes

Income TaxBy Bob Eschliman


Despite the fact the first legislative “funnel” deadline has passed, legislators in the General Assembly are still proposing new bills in both the Iowa House of Representatives and the Iowa Senate.

In the House, a pair of bills focus on the creation of a new income tax check off, as well as the establishment of an alternative base income tax.

House File 594, drafted by state Rep. Dawn Pettengill (R-Mount Auburn) and co-sponsored by seven of her colleagues, is a bipartisan bill that aims to raise funds for Iowa Check Off Hunger Fund. Appropriations from the Check Off Hunger Fund will go to the Iowa Department on Aging to provide grants for the purpose of reducing food insecurity.

Fifty percent of the funds must be distributed to each area agency on aging in proportion to the estimated amount of Iowa seniors served, to be used to provide congregate meals and home-delivered meals to food-insecure seniors. Forty percent of the funds must be awarded to the Food Bank of Iowa and its affiliate food banks across Iowa.

The remaining 10 percent are required to be awarded to persons who are using innovative ways to reduce food insecurity in this state and who make a grant application to the Department on Aging.

HF 594 has an interesting provision that exempts itself from Iowa Code 422.12E, which specifies only four check offs at a time may appear on the Iowa Income Tax Return form. Currently, there are more than four check offs vying for those positions, which are determined on a biennial basis, based on the amount of revenue generated.

Iowa Code 442.12E also requires the two check offs receiving the least amount of revenue be automatically removed every two years. If approved, the Iowa Check Off Hunger check off will appear on next year’s tax return form.

The proposed legislation has the support of the YMCA State Alliance and the Polk County Board of Supervisors.

House Study Bill 215 has been proposed in the House Ways and Means Committee, chaired by state Rep. Tom Sands (R-Wapello). It would create a new alternative base income tax that Iowa income tax payers could choose to impose upon themselves in lieu of the regular state income tax.

The base income tax rate, under the proposed legislation, would be 5 percent. “Base income” is defined in the bill as the taxpayer’s adjusted gross income before the net operating loss deduction as properly computed for federal income tax purposes, less a standard deduction – $6,235 for a married person who files separately or a single person, or $12,470 for a married couple filing a joint return, a surviving spouse, or a head of household – excluding interest and dividends from federal securities, Social Security benefits, and retirement income.

HSB 215 indexes the standard deduction amounts for future inflation. Also, under the bill, a taxpayer won’t be allowed any nonrefundable or refundable tax credit, except the credits for withheld tax and estimated tax paid under Iowa Code 422.16.

“Taxpayers who are 65 years of age or older who elect the alternative base income tax are not required to file an income tax return if base income does not exceed $32,000 for a married person filing jointly or filing separately on a combined return, a head of household, or a surviving spouse, or $24,000 for all other persons,” the bill’s explanatory statement says. “For purposes of calculating base income for the filing threshold, taxpayers are required to add back any Social Security benefits or retirement income otherwise exempt under the bill except for military retirement pay. Taxpayers who meet these requirements and who do not file a tax return are deemed to have elected to be subject to the alternative base income tax. If a taxpayer making an election is also subject to a local income surtax, that taxpayer is subject to a local income surtax rate that is 22 percent higher than the rate otherwise imposed by the school district or political subdivision.”

If approved, HSB 215 will also go into effect for the 2015 tax year, making it an option for taxpayers who file returns next year.

The Iowa State Education Association and the Iowa Federation of Labor (AFL-CIO) are both opposed to the proposed legislation.

Meanwhile, in the Senate, two other bills have been offered that would apply to the Iowa income tax.

Senate File 468, offered by state Sen. Mark Chelgren (R-Ottumwa), eliminates the deduction for federal income taxes paid and the inclusion of federal income tax refunds received from the individual and corporate income taxes. There would be a one-year phase-out for the first year after adoption to cover taxes paid and refunds received in the previous year.

The bill would also reduce by approximately 33 percent each of the nine tax rates under the individual income tax. The current rates range from a low of 0.36 percent to a high of 8.98 percent; the new rates would range from a low of 0.24 percent to a high of 5.99 percent.

SF 468 would also reduce by approximately 50 percent each of the four tax rates under the corporate income tax. The current rates range from a low of 6 percent to a high of 12 percent; the new rates would range from a low of 3 percent to a high of 6 percent.

If approved, the proposed legislation would apply retroactively to include tax years beginning on Jan. 1 of the current tax year.

Iowans for Tax Relief and the Iowa State Education Association are opposed to the bill.

Chelgren also authored Senate File 470, which would eliminate the top four individual income tax brackets, while reducing the rate on the fifth highest – which would become the highest under the bill – to 5 percent. The proposed legislation would eliminate all progressive brackets on the corporate income tax, replacing it with a 5-percent rate for all corporations, 1 percent lower than the current lowest corporate tax rate.

Iowans for Tax Relief is in favor of SF 470, while the Iowa State Education Association is opposed to the bill.