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Official Tax Guide

Iowa Taxes 2025: Income, Sales, and Property Tax Guide

Complete guide to Iowa state taxes. Income tax (Top 5.7%), sales tax, and what you need to know before moving.

Updated January 15, 2026
5 min read

State Tax Guide 2025: Iowa

Moving to Iowa involves understanding the state's tax landscape. This guide provides a comprehensive overview of Iowa's tax structure for the 2025 fiscal year, focusing on the key areas relevant to new residents.

1. Income Tax

Iowa operates a progressive income tax system. This means tax rates increase as income rises, structured across several brackets.

  • Top Tax Rate: The highest marginal tax rate is 5.7%.
  • Recent Changes: Iowa has been in the process of simplifying and reducing its income tax structure. While the system remains progressive for 2025, legislation has aimed to consolidate brackets and lower rates over recent years. It is essential to verify the specific bracket thresholds for the current tax year, as these are subject to annual adjustments by the Iowa Department of Revenue.
  • Federal Deduction: Iowa allows taxpayers to deduct a portion of their federal income tax paid from their state taxable income, which can lower the overall state tax burden.

2. Sales Tax

Iowa's sales tax is relatively straightforward but can vary depending on your location.

  • State Rate: The base state sales tax rate is 6%.
  • Local Taxes: Counties and cities may levy additional local option sales taxes. This means the total sales tax you pay at the register can be higher than the state rate, typically ranging from 6% to 7% depending on the specific jurisdiction.
  • Use Tax: Iowa imposes a use tax on items purchased outside the state (e.g., online purchases) for use, storage, or consumption in Iowa if Iowa sales tax was not paid at the time of purchase.

3. Property Tax

Property taxes in Iowa are primarily administered at the county level and are a significant source of revenue for local governments, including schools and counties.

  • General Context: Iowa's property tax burden is generally considered around the national median. While not among the highest in the nation, it is a substantial consideration for homeowners.
  • Assessment: Property is assessed annually based on its market value. However, Iowa uses a "rollback" system where the taxable value for residential properties is a percentage of the assessed value (typically around 56.5% for residential property, though this percentage can change).
  • Exemptions: Various exemptions are available, including for senior citizens (65+), disabled individuals, and surviving spouses of emergency responders. These can significantly reduce the taxable value of a primary residence.

4. Other Taxes

Beyond income, sales, and property, Iowans should be aware of several other taxes:

  • Gas Tax: Iowa's gasoline tax is a flat rate per gallon (approximately $0.30-$0.32 per gallon as of recent years, subject to legislative change). This is in addition to the federal gas tax.
  • "Sin" Taxes: Iowa imposes excise taxes on specific goods, including:
    • Alcohol: Tax rates vary by type (beer, wine, liquor).
    • Tobacco & Vaping Products: Significant excise taxes apply to cigarettes, other tobacco products, and nicotine vapor products.
  • Inheritance Tax: Iowa does have an inheritance tax, which is paid by the beneficiary receiving the assets. However, it is fully exempt for transfers to a surviving spouse. For other beneficiaries (e.g., children, siblings), Iowa offers a tax credit for any inheritance tax paid to another state, preventing double taxation in many cases. Note: Iowa's inheritance tax is scheduled to be fully repealed for deaths occurring on or after January 1, 2025. It is critical to verify the current status if planning an estate.
  • Corporate Income Tax: For business owners, Iowa has a graduated corporate income tax rate structure, with a top rate of 9.8%. There is also an alternative minimum tax.

5. Retiree Taxes

Iowa offers a favorable tax environment for many retirees, though it's not a complete tax haven.

  • Retirement Income: Iowa taxes most forms of retirement income, including distributions from 401(k)s, IRAs, and traditional pensions.
  • Social Security: Social Security benefits are exempt from Iowa state income tax for most taxpayers. However, if your federal Adjusted Gross Income (AGI) exceeds certain thresholds ($100,000 for single filers; $150,000 for married filing jointly), you may have to include a portion of your Social Security benefits in your taxable income.
  • Senior Benefits: Iowa offers a "Homestead Tax Credit" for seniors (65+) and disabled individuals, which provides a credit against property taxes on their primary residence.

6. Comparison to Neighboring States

Iowa's tax structure sits in the middle compared to its neighbors:

  • Illinois: Iowa's top income tax rate (5.7%) is lower than Illinois's flat rate (currently 4.95%, but subject to change). However, Illinois has higher property taxes and sales taxes in many areas.
  • Missouri: Missouri's top income tax rate is lower than Iowa's (currently 4.95%, but subject to change). Missouri also taxes Social Security benefits for higher-income retirees, whereas Iowa generally exempts them.
  • Minnesota: Minnesota has a higher top income tax rate (9.85%) and taxes Social Security benefits. Iowa is generally more tax-friendly for middle-income earners and retirees compared to Minnesota.
  • Nebraska: Nebraska has a higher top income tax rate (6.84%) and taxes Social Security benefits for higher incomes, making Iowa potentially more attractive for retirees.

Disclaimer

This guide is for informational purposes only and reflects tax laws and rates as of the 2025 fiscal year. Tax laws change frequently and can be impacted by new legislation or administrative rulings. This information should not be considered legal or financial advice. Always consult with a qualified CPA or tax professional for advice tailored to your specific financial situation.