Remember House File 2317 from last year? Folks don’t often remember bill numbers but this is one you should - it was the largest tax cut ever passed in our state and every Iowan saw a tax cut as a result. House File 2317 gets Iowa to a flat tax of 3.9% on all taxable income in tax year 2026. House File 2317 helps the single mom with two kids on an income of $25,000. That mom would pay $714 in Iowa taxes under the current law but will only pay $521 in 2026 because of this bill. That is a 27% reduction in her taxes.
The bill also helps the family of four with two working parents on an income of $50,000. That family would pay $1,918 under the current law, but will have that number cut to $1,520 because of this tax cut. That’s more than a 20% tax cut for that middle-class, working family.
House File 2317 not only reduced individual income tax rates and provides for an eventual flat tax of 3.9%, but also exempts retirement income from individual income tax, lowers the corporate tax rate to an eventual 5.5% flat tax based on a revenue trigger, and makes changes to tax credits. Coupled with the fact that Iowa hasn’t taxed social security in more than a decade, when it comes to taxes, Iowa really is the Midwest’s Field of Dreams. So how do our neighbors stack up?
To the north—Minnesota has a graduated individual income tax, with rates ranging from 5.35% to 9.85%. Minnesota has a 9.80% corporate income tax rate. Minnesota taxes your social security and all retirements. Moving north does not seem viable—especially if you are over 55. Additionally, Minnesota raised their gas tax, raised vehicle registration fees, increased taxes on the sales of new vehicles and enacted a new fee on the delivery of most goods. Minnesota really is earning their new nickname as the California of the Midwest.
Let’s look to the east—Illinois has a flat 4.95% individual income tax rate. Illinois also has a 9.50% corporate income tax rate. Surprisingly, Illinois does not tax social security or retirement.
How about Michigan? Michigan has a flat 4.25% individual income tax rate, but there are also local jurisdictions there that collect income taxes. Michigan has a 6% corporate income tax rate. Governor Whitmer has also twice vetoed tax cuts in 2023. What Michigan really fumbled was retirement income. If you were born before 1946, the tax breaks for retirement income are pretty good. However, if you were born later, the state is not as forgiving. There were some new retirement tax benefits signed into law this year that seem to stair step based on age. Luckily, Michigan does not tax social security.
What about Wisconsin? They have a graduated individual income tax, with rates ranging from 3.54% to 7.65%. Wisconsin also has a flat 7.90% corporate income tax rate. Unfortunately, their governor also recently vetoed an income tax cut. The Badgers exempt Social Security benefits from state taxes, but pension income along with distributions from IRAs and 401(k) plans, are generally taxable. Bottom line—retiring in Wisconsin is expensive.
What about our neighbor to the west? Nebraska has a graduated individual income tax, with rates ranging from 2.46% to 6.64%. Nebraska also has a 5.58% to 7.25% corporate income tax rate. Doesn’t sound too bad unless you are a retiree. The Cornhuskers tax most Social Security benefits and other retirement income. The best decision here is to cross the Missouri River and retire in Iowa.
So, if you have landed in the Midwest and Iowa or Iowa State’s tailgating experience is not reason enough for you to homestead in Iowa…just stack us up against our neighbors and see where you will keep the most of your hard-earned money. It turns out, all roads lead to Iowa.
Representative Taylor Collins
Rep. Taylor Collins resides in Mediapolis and represents Iowa House District 95, encompassing all of Louisa, and parts of Des Moines, Henry, and Muscatine Counties.