The Fry Times

Jan. 26, 2023

Recently there have been a lot of questions and concerns about the pension income inclusion that went into effect at the beginning of this year. Last session, the Governor signed House File 2317. Division VI of that legislation excludes retirement income from Iowa taxable income starting January 1, 2023. The department has published guidance that describes some of those changes and has stated that they will update this guidance and applicable administrative rules in the near future to implement these changes.

To qualify for the retirement income exclusion, the taxpayer must be:

· 55 years of age or older on December 31 of the tax year, or

· Disabled, or

· A surviving spouse or a survivor having an insurable interest in an individual who has qualified for the exclusion in the tax year on the basis of age or disability.

The retirement income exclusion covers “governmental or other pension or retirement plan[s] including defined benefit or defined contribution plans, annuities, individual retirement accounts, plans maintained or contributed to by an employer, or maintained or contributed to by a self-employed person as an employer, and deferred compensation plans or any earnings attributable to the deferred compensation plans….”

As of now, the Department has determined that distributions from the following plans qualify for the exclusion:

· Distributions from individual retirement plans (IRA) authorized under section 408 of the Internal Revenue Code (IRC)

· Distributions from a simplified employee pension (SEP) plan;

· Distributions from a savings incentive match plan for employees (SIMPLE) retirement plan;

· Distributions from a Keogh plan;

· Distributions from qualified pension plans as described in Treasury Regulation section 1.401-1(b)(1)(i), including IPERS;

· Roth conversion income;

· Distributions from qualified deferred compensation plans governed by the Employee Retirement Income Securities Act (ERISA) including a 401(k), 403(b), and 457(b) plans;

· Annuity distributions pursuant to IRC section 402(a).

· Distributions from an Employee Stock Ownership Plan (ESOP) as defined in section 4975(e)(7) of the IRC

The Department has stated that they will administer withholding on retirement income in accordance with Iowa Administrative Code rule 701–307.1(2). Under the rule, no state income tax withholding is required when nonwage payments to residents are not subject to state income tax. Based upon this administrative rule, the Department takes the position that Iowa income tax is not required to be withheld on distributions of qualifying retirement income made to eligible payees.

Forum Schedule

Senator Sinclair and Representative Fry will once again be hosting Legislative Forums in the District during the 2023 Legislative Session.

The first day of forums will be: February 24, 2023

8:00 am - Corydon, IA at the Corydon Farm Bureau

10:00 am - Chariton, IA at the Chariton Farm Bureau

12:00 pm - Osceola, IA at the Lakeside Casino

2:00 pm - Leon, IA at the Leon Community Center