Iowa state tax: Overview
Iowa tax bills will be slightly lower this year, as the state’s individual income tax rate dropped by nearly 2 percentage points.
Government officials in Iowa passed a comprehensive tax reform that would lower the individual income tax rate from its top rate of 5.7% to a single flat rate of 3.8% in 2025. That’s a significant turn-around for folks that want to keep more of their hard-earned money in their pockets.
As reported by Kiplinger, Iowa’s move to lower its tax rate lands the state among those with the lowest personal income tax rates in the country. Less than a decade ago, that couldn’t be further from the truth.
Residents of the Hawkeye State also don’t have to pay tax on qualified pension income, nor on any inheritance. That makes it sound like a sweet deal for folks eyeing a move to the state that’s friendly to retirees.
You should keep in mind that the larger the tax cuts are, the more that could mean revenue drawn for public services will have to come from another source. That being said, let’s dive into what taxes will look like in Iowa.
[Data for this state tax guide was gathered from several sources including the U.S. Census Bureau, the state’s government website, the Sales Tax Handbook, and the Tax Foundation. Property taxes are cited as a rate percentage rather than the assessed value.]
Iowa income tax
Iowa adopted a single individual income tax rate in 2025, which lowers the income tax from its top rate of 5.7% to a flat 3.8%. That’s significantly lower than the peak rate of nearly 9% about six years ago when state lawmakers first began reducing the personal income tax.
According to state documents, a flat individual income tax rate of 3.9% is scheduled to go into effect in 2026. Reducing the income tax is expected to bring in nearly $1 billion in tax savings for Iowans within the first two years.
As reported by Kiplinger, the measure adds the state to the 14 states that have a flat income tax rate, it's also earned the state a spot among the lowest income tax in the nation.
Additionally, there is an income surtax for schools which is a local option tax based on the taxpayer’s Iowa income tax liability. For 2025, that should equal a surtax of 2.5% of your state individual income tax liability.
Iowa income taxes in retirement: All retirement income is exempt for taxpayers who are at least 55 years old, there is also no inheritance tax as of 2025.
Iowa sales tax
Iowa has a state sales tax rate of 6%. Localities can add as much as 2%, and the average combined rate is 6.941%, according to the Tax Foundation.
- Groceries are tax-exempt.
- Prescription drugs are tax-exempt.
- Diapers and some feminine hygiene products are tax-exempt.
How much are property taxes in Iowa?
In Iowa, the average effective property tax rate is 1.40%.
The property tax cycle in Iowa happens across eighteen months. Residents and property owners get an individual assessed value of their property on January 1. The first half payment for property taxes is due in the fall of the next year, and the remaining portion is paid in the spring.
That means, the assessment for January 2024 would be associated with taxes due in fall 2025 and spring of 2026, according to Iowa’s Department of Revenue.
Iowa Property Tax Breaks for Retirees
Iowa introduced a new Homestead Tax Exemption for Claimants 65 Years or Older last year. For the 2024 assessment year, the exemption (amount excluded from a property's taxable value) is worth $6,500.
Additionally, military service tax exemptions were raised to $4,000 in taxable value for assessment years on or after January 1, 2023.
Iowa gas tax
Iowa has close to the lowest gas tax rates in the nation, making it a good choice for commuters.
The excise tax rate on gasoline is 30 cents per gallon. Meanwhile, those using diesel can expect to pay 0.325 cents per gallon.
Iowa taxes on alcohol and tobacco
Iowa estate and inheritance taxes
Iowa started phasing out its inheritance tax three years ago by reducing the rate of tax by 20% each year (the original base rates ranged from 5% to 15%).
For 2024, Iowa's inheritance tax ranged from 2% to 6%, depending on the amount of the inheritance and the relationship of the recipient to the decedent. However, no tax is due on property left to a surviving spouse, stepchildren, lineal descendants (children, grandchildren, etc.), or lineal ascendants (parents, grandparents, etc.). In addition, no tax is due if the estate's net value is less than $25,000.
The tax has been completely repealed as of January 1, 2025.
