Tax in Iowa: a complete guide

1 min readLast updated January 15, 2024by Rachel Carey

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.   

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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 incomeIncome tax rate for 2023Income tax rate for 2024Income tax rate for 2025Income 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:

ProductCost
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 countyMedian 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 inheritedInheritance tax rate for 2023Inheritance 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.    

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Senior Content Writer

Rachel Carey

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.

Need help with your taxes?

A financial advisor can help you with all of your tax planning needs