State Taxes

Taxes in Iowa: State Tax Guide 2026

Updated 2026-03-10

Data Notice: Figures, rates, and statistics cited in this article are based on the most recent available data at time of writing and may reflect projections or prior-year figures. Always verify current numbers with official sources before making financial, medical, or educational decisions.

Taxes in Iowa: State Tax Guide 2026

Tax information is for educational purposes only and does not constitute tax advice. Consult a licensed tax professional for your specific situation.

Iowa has been in the middle of a dramatic tax overhaul. A 2022 law set the state on a path to a flat 3.90% income tax by 2026, down from a top rate of 8.53% just a few years earlier. The reform also phases out taxation of retirement income and eliminates the state’s inheritance tax. Combined with moderate property and sales taxes, Iowa’s tax competitiveness is improving rapidly, particularly for retirees and higher earners.


Iowa Income Tax Rates (2026)

Iowa is transitioning to a flat income tax:

Tax RateTaxable Income Range
3.90%All taxable income (flat rate)

The transition schedule: 2023 — four brackets, top rate 6.00%; 2024 — 5.70% flat; 2025 — 4.40% flat (projected); 2026 — 3.90% flat. Actual implementation depends on revenue triggers being met.

Iowa’s standard deduction is ~$2,210 for single filers and ~$5,450 for married filing jointly — considerably lower than the federal amounts. Iowa also allows a personal exemption credit of ~$40 per person.

Federal tax deduction: Iowa previously allowed a deduction for federal income taxes paid, but this was eliminated as part of the 2022 tax reform, effective 2023.


Sales Tax

ComponentRate
State base rate6.00%
Local option0%–1%
Average combined rate~6.94%

Most Iowa jurisdictions impose the 1% local option sales tax, making the typical combined rate 7.00%.

Exempt from sales tax: Most unprepared food (groceries), prescription medications, and medical devices. Iowa exempts most clothing from sales tax (no special reduced rate needed — clothing is simply not taxed).


Property Tax

MetricAmount
Average effective rate~1.43%
National average0.99%
RankAmong the 10 highest nationally

Iowa property taxes are significantly above the national average. Residential property is assessed at 100% of market value, though a rollback factor reduces the taxable value to approximately ~46%–54% of assessed value for residential properties.

Homestead credit: A credit applied to the property taxes on the first ~$4,850 of homestead value. The credit amount is set annually by the state.

Military exemption: An exemption of ~$1,852 of assessed value for qualifying veterans.

Example: A home with a market value of $250,000, rolled back to ~$130,000 taxable value, at a typical levy rate of ~$27 per $1,000, pays approximately ~$3,510 per year.


Other Taxes

  • Inheritance tax: Iowa’s inheritance tax is being phased out and is fully repealed effective 2025. For 2026, there is no inheritance tax.
  • No estate tax: Iowa does not impose a state estate tax.
  • Capital gains: Taxed at the flat 3.90% rate.
  • Fuel tax: ~$0.30 per gallon.
  • Cigarette tax: ~$1.36 per pack.
  • Alcohol tax: ~$12.47 per gallon of spirits (Iowa is a control state with state-run liquor stores).
  • Local option income surtax (school funding): Some Iowa school districts previously imposed an income surtax, but this was eliminated as part of the 2022 tax reform.
  • No city or county income taxes (post-reform).

Tax Breaks and Credits

  • Retirement income exemption: Under the 2022 reform, starting in 2023, all retirement income (Social Security, pensions, 401(k), IRA, annuities) is exempt from Iowa state income tax for taxpayers aged 55+. This is a complete exemption with no income cap — one of the most generous in the nation.
  • Social Security: Fully exempt (part of the broader retirement income exemption above).
  • Earned income tax credit: ~15% of the federal EITC (refundable).
  • Child and dependent care credit: ~75% of the federal credit for filers with net income under ~$10,000, phasing down to ~30% for higher incomes.
  • Tuition and textbook credit: 25% of the first ~$1,000 spent per dependent on tuition and textbooks for K–12.
  • 529 plan deduction: Up to ~$3,785 per beneficiary per year for contributions to any state’s 529 plan.
  • Geothermal/solar credit: Iowa offers tax credits for geothermal heat pump and solar energy installations.

Key Takeaways

  • Iowa’s flat 3.90% income tax for 2026 is a dramatic drop from the 8.53% top rate of just a few years ago
  • All retirement income is fully exempt for taxpayers 55+, making Iowa one of the best states for retirees from a tax perspective
  • Property taxes remain high at ~1.43%, which is the main offsetting factor to the income tax reductions
  • The inheritance tax has been fully repealed as of 2025
  • Sales tax at ~6.94% combined is near the national average, with exemptions for groceries and clothing

Next Steps

Tax information is for educational purposes only. Consult a licensed tax professional.