Iowa Excludes All Military Pay and All Military Retirement Pay

Iowa has an income tax and collects none of it from military income. The three subtractions below are unconditional, and together they mean a career military retiree living in Iowa on retired pay alone has no Iowa taxable income from that pay at any age. Active duty pay. Section 422.7, subsection 29: "Subtract, to the extent included, all pay received by the taxpayer from the federal government for military service performed while on active duty status in the armed forces, the armed forces military reserve, or the national guard." All of it. Not a combat-zone carve-out, not a cap, not limited to service outside Iowa. Military retirement pay. Section 422.7, subsection 20, paragraph "a": "Subtract, to the extent included, retirement pay received by a taxpayer from the federal government for military service performed in the armed forces, the armed forces military reserve, or national guard." Paragraph "b" then says the exclusion "is in addition to any exclusion provided under subsection 19", which is the general retirement income exclusion for a person who is disabled, fifty-five or older, or a qualifying surviving spouse. So there is no stacking penalty here. This is the opposite of the pattern in some states, where a military retirement deduction is offset against the general retirement deduction so the gain is illusory. In Iowa the statute says expressly that it is additive. Note two things about subsection 20. There is no age condition, so a retiree in their forties gets it. And the Department of Revenue states the exclusion is "retroactive to tax years beginning on or after January 1, 2014, regardless of a taxpayer's age", which is how the benefit came in. Survivor Benefit Plan. Section 422.7, subsection 21: survivor benefits received from the federal government under 10 U.S.C. section 1447 et seq. are subtracted, and again "in addition to any exclusion provided under subsection 19". One limit on all three. Each is phrased "to the extent included". These are subtractions from an Iowa calculation that starts from federal figures, so the amount comes out only to the extent it went in. The Department of Revenue puts it as: "The retirement pay is only deductible to the extent it is included in the taxpayer's federal adjusted gross income." Pay that was never in federal adjusted gross income, such as the combat zone exclusion, does not get subtracted twice. The filing threshold point is worth money. The Department of Revenue states that "military retirement pay, unlike other pension income, is not included in the calculation of the filing threshold to determine if a taxpayer has to file an Iowa income tax return." A retiree whose only income is retired pay therefore may have no Iowa filing obligation at all, rather than an obligation to file and report zero. Confirm your own position with the Department before skipping a return. What is left is taxed at a flat rate. Section 422.5, subsection 1, paragraph "a" imposes the tax "at a rate of three and eight-tenths percent". There are no brackets to plan around, which is what makes the military subtractions easy to value: every dollar excluded is 3.8 cents saved. Other military subtractions in the same section, which are narrower and easy to miss: Retirement account withdrawals on activation. Subsection 26 subtracts withdrawals from qualified retirement plan accounts made during the tax year if the taxpayer or the taxpayer's spouse "is a member of the Iowa national guard or reserve forces of the United States who is ordered to national guard duty or federal active duty", and adds: "In addition, a penalty for such withdrawals shall not be assessed by the state." Iowa waives its own early-withdrawal penalty, which is separate from whatever the federal treatment is. Military student loan repayments. Subsection 28 subtracts military student loan repayments received while serving on active duty in the guard, the reserve, or on active duty status in the armed forces. Injured veterans grants. Subsection 31 subtracts the amount of any grant under the injured veterans grant program in section 35A.14, and rule 701-302.68 implements it. Subsection 33 lets a donor to that program subtract what they paid in, though not also as a charitable contribution. Veterans trust fund assistance, but only two categories of it. Subsection 32 subtracts amounts received from the veterans trust fund for travel expenses under section 35A.13, subsection 8, paragraph "a", and unemployment assistance under paragraph "c". Those are two of the fifteen purposes the trust fund can pay for. There is no Iowa subtraction on the face of the statute for trust fund money received for durable medical equipment, hearing, dental or vision care, prescription drugs, counselling, family support, honor guard services, ambulance and emergency room expenses, vehicle or housing repair, temporary housing, traumatic brain injury screening, rental application fees, or the one-time homelessness prevention payment. Whether any of those is includible income in the first place is a federal question before it is an Iowa one, and the general welfare doctrine may answer it, but a veteran who receives a trust fund grant outside the two listed categories should not assume a state subtraction exists. Filing time if you are deployed. Section 422.13, subsection 2 gives an individual serving in a presidentially or congressionally designated combat zone or qualified hazardous duty area, or deployed away from a permanent duty station in a designated contingency operation as defined in 10 U.S.C. section 101(a)(13), or serving in support of those forces, "the same additional time period" allowed by section 7508(a) of the Internal Revenue Code to file an Iowa return or perform other acts. An individual on active duty federal service deployed outside the United States in other than a combat zone, hazardous duty area or contingency operation gets the same extension. "Other acts related to the department" expressly includes refund claims, tax payments other than withholding, appeals and other returns. The extension reaches the spouse where they file jointly or are a party to the matter. One dead cross-reference worth knowing about. Section 35A.13, subsection 2, paragraph "b" still lists among the veterans trust fund's sources "moneys credited to the fund pursuant to an income tax checkoff provided in chapter 422, subchapter II, if applicable." Both such checkoffs are gone: section 422.12G was repealed by its own terms under 2019 Iowa Acts chapter 152, and section 422.12L was repealed by its own terms under 2021 Iowa Acts chapter 177. There is no veterans trust fund checkoff on the Iowa return. The words "if applicable" are all that is holding that sentence up.