Iowans to see more money in their pockets as new 3.8% flat tax rate goes into effect

DES Moines, Iowa — Iowa is getting rid of its income tax brackets. Now, instead of the 4.4% to 5.7% tax rate Iowa had in 2024, Iowans will now start paying a flat tax rate of 3.8%.

“All of the things we’ve been able to do when it comes to putting our budget together and our tax plans, we’ve done that in a way that’s been very fiscally sound and long-term,” House Speaker Pat Grassley said.

According to 2023 census data, the average Iowan makes around $40,000 a year and will save roughly $760 annually under the new tax cuts.

That jumps to about $1,900 in savings for those making $100,000 a year.

Democrats have criticized the tax cuts and claim they’ll benefit wealthy Iowans the most, while state budget projections show a shortfall in the coming years.

“I mean, the fact that our state has budget woes right now is because of Republican policies,” State Rep. Jennifer Konfrst said. “They’ve been implementing policies that are unsustainable and irresponsible and I think it’s clear and important that Iowans know that they’ve been in charge, if our state’s having budget problems, it’s because of their budgeting practices.”

Iowa’s Revenue Estimating Conference expects the tax cuts will spur on a decrease in state funds over the next couple years, and predicted a $665 million drop in tax revenue for fiscal year 2026.

However, Republicans said they’ve been expecting the decline and there’s still plenty of money in the reserves.

“Whatever we are gonna do has to be sustainable. And as we have that $4 billion in the tax payer relief fund, as we have a $2 billion surplus, our rainy day funds and our cash reserves are full, we’re sitting in a position where, as a state, I think we are very strong and probably most other states are, would be very jealous of the position we sit in and have the ability to continue to lower tax’s,” Rep. Grassley said.

Lawmakers return for the new legislative session on January 13th with Republicans entering an eighth year of total control in the House and Senate. They’re focused on a reduction in property taxes as their top priority this year.

You can check out some of the other new laws taking effect in Iowa with the new year by clicking here.