Tax in Iowa: a complete guide
If you’re considering making Iowa your future residence, you must understand the tax system and your potential future tax burden.
The cost of living in Iowa is 9 percent lower than the national average across the US, according to RentCafe, making this state an attractive prospect for many Americans in need of a change and a chance to make their money go further.
But how does the tax system work in the state? And does it suit you?
Iowa income tax
One of the most significant considerations before moving to a new state is how your income will be taxed.
Wherever you are in the country, you’ll pay federal income tax according to the bracket your earnings put you in. On top of that, most states will levy their own income tax.
As for individuals, currently, Iowa’s state-level individual income tax ranges between 4.4 percent and six percent. Local jurisdictions can also collect local income taxes in some cases. It’s a graduated system and will work as follows regardless of your filing status, whether that’s single filer, married filing jointly or separately. However, bracket limits will double for married couples filing jointly.
| Taxable income | Income tax rate for 2023 | Income tax rate for 2024 | Income tax rate for 2025 | Income tax rate for 2026 |
|---|---|---|---|---|
| $0–$6,000 | 4.4 percent | 4.4 percent | 4.4 percent | 3.9 percent |
| $6,001–$30,000 | 4.82 percent | 4.82 percent | 4.82 percent | 3.9 percent |
| $30,001–$75,000 | 5.7 percent | 5.7 percent | 4.82 percent | 3.9 percent |
| $75,001 upwards | 6 percent | 5.7 percent | 4.823 percent | 3.9 percent |
As of 2026, and as shown in the table above, Iowa will be moving to a flat 3.9 percent rate of individual income tax. This will apply to all taxpayers earning money in the state, regardless of income specifics.
Following a January 2023 update, Iowa’s corporate income tax is charged at one of two rates. Corporate income up to $100,000 is taxed at 5.5 percent, while corporate income upwards of $100,000 is taxed at 8.4 percent.
Iowa sales tax
Iowa sales and use taxes are charged on physical and digital product purchases and certain services. The usual rate of either tax is 6 percent, plus an extra 1 percent in local sales tax if this applies in the jurisdiction you’re buying in. Some items are exempt from sales and use tax in the Hawkeye State, including:
Groceries (excluding candy and soda, which remain taxable)
Prescription drugs
Construction equipment/items
Agriculture equipment/items
Items for advertising use, e.g., envelopes, promotional posters
Specific excise taxes apply to restricted items like alcohol and cigarettes, with rates differing depending on product specifics:
As of 2026, and as shown in the table above, Iowa will be moving to a flat 3.9 percent rate of individual income tax. This will apply to all taxpayers earning money in the state, regardless of income specifics.
Following a January 2023 update, Iowa’s corporate income tax is charged at one of two rates. Corporate income up to $100,000 is taxed at 5.5 percent, while corporate income upwards of $100,000 is taxed at 8.4 percent.
Iowa sales tax
Iowa sales and use taxes are charged on physical and digital product purchases and certain services. The usual rate of either tax is 6 percent, plus an extra 1 percent in local sales tax if this applies in the jurisdiction you’re buying in. Some items are exempt from sales and use tax in the Hawkeye State, including:
Groceries (excluding candy and soda, which remain taxable)
Prescription drugs
Construction equipment/items
Agriculture equipment/items
Items for advertising use, e.g., envelopes, promotional posters
Specific excise taxes apply to restricted items like alcohol and cigarettes, with rates differing depending on product specifics:
| Product | Cost |
|---|---|
| Any tobacco products other than cigarettes | 50 percent of the manufacturer’s price |
| Beer | $0.19 per gallon |
| Cigarettes | $1.36 per pack |
| Liquor | $2.14 per 750 milliliters, State Controlled |
| Wine over 5 percent | $1.75 per gallon |
| Wine under 5 percent | $0.19 per gallon |
Iowa property tax
Statewide, the average property tax rate in Iowa is 1.5 percent. It’s hard to determine what you’ll pay in tax on a home you buy in the state before you know where you’ll be living since rates change from area to area depending on local district stipulations and regulations. Here are the average annual payment amounts for a range of different counties as listed on Tax-Rates.org:
| Iowa county | Median annual property tax payment |
|---|---|
| Adair | $1,491 |
| Boone | $2,282 |
| Cedar | $2,106 |
| Dallas | $4,463 |
| Franklin | $1,362 |
| Hancock | $1,307 |
| Mitchell | $1,561 |
| Shelby | $1,768 |
| Washington | $2,250 |
Iowa motor tax
In Iowa, new and used vehicles are subject to state sales tax when purchased, but this tax is levied at a lower-than-usual rate of five percent. It might be cheaper to find a vehicle when you get to the Midwest, as long as you’ve factored in other costs like registration, titling, and fuel.
Gasoline is taxed between $0.245 and $0.30 per gallon, depending on your locality, while undyed diesel is taxed between $0.298 and $0.325 per gallon.
Iowa estate tax
From the estate tax side, you won’t have to contend with anything beyond federal requirements in the Hawkeye State, meaning you’ll be exempt from estate taxation unless your combined assets are worth over $12.92 million.
Inheritance tax is levied in Iowa, making it one of the few US states to do so. From January 2025, this will no longer be the case, but until then, it’s worth accounting for. Inheritance tax in the state doesn’t apply if you inherit assets, personal property or real estate from:
Spouses
Adopted parents
Grandparents
Great grandparents
Children
Stepchildren
Grandchildren
Great-grandchildren
Other ascendants or descendants in your line
It will apply in other cases, such as an inheritance from a sibling, cousin, aunt, uncle, niece or nephew. Rates (leading up to the dissolution of this tax in 2025) are as follows:
| Amount inherited | Inheritance tax rate for 2023 | Inheritance tax rate for 2024 |
|---|---|---|
| $0–$12,500 | 2 percent | 1 percent |
| $12,501–$25,000 | 2.4 percent | 1.2 percent |
| $25,001–$75,000 | 2.8 percent | 1.4 percent |
| $75,001–$100,000 | 3.2 percent | 1.6 percent |
| $100,001–$150,000 | 3.6 percent | 1.8 percent |
| $150,001 upwards | 4 percent | 2 percent |
Iowa retirement tax
Suppose you’re a soon-to-be retiree considering setting up a home in the great state of Iowa. In that case, you’re probably wondering how friendly it is regarding taxation on retirement income.
All Social Security benefits in Iowa are exempt from tax, and Iowans aged 55 and over are, as of 2023, exempt from paying tax on any of their retirement income.
Residents welcomed this adjustment, which saw almost 300,000 older people shedding their tax burden. You can also check out the complete guide to retirement in Iowa here.
For further tax guidance and to ensure you’re not paying more tax than you need to, it’s wise to speak to an expert. A financial advisor can help you handle all your tax queries and ensure you’re not paying more tax than needed.
Senior Content Writer
Rachel is a Senior Content Writer at Unbiased. She has nearly a decade of experience writing and producing content across a range of different sectors.