Bills › 88th General Assembly
Exempting from the individual income tax the wages of individuals who are employed in high-demand jobs and including effective date and retroactive applicability provisions
Where it is now
- Done: IntroducedJanuary 31, 2019
- Done: SubcommitteeFebruary 4, 2019
- Stopped: Senate committeeDied when the General Assembly ended
- Next: Passes the Senate
- Next: House committee
- Next: Passes the House
- Next: To the Governor
- Next: Signed into law
Died when the session ended The 2020 session adjourned on June 14, 2020, the General Assembly’s last regular session. Bills that didn’t pass both chambers died. What’s a funnel?
What’s in it
This bill exempts from the individual income tax wages of individuals who are employed in high-demand jobs.1B(13A), which becomes effective July 1, 2019 (see 2018 Iowa Acts, chapter 1067, sections 7 and 15). The bill also defines “high-demand job” to include a job category in a city or county identified by the city or county where work opportunities are available and qualified applicants are lacking. The bill requires a city or county to petition the community college in the region in which the city or county is located to designate such a job category as a high-demand job.
Read the full explanation
For each tax year a community college may designate up to 10 job categories as “high-demand jobs” in the region of the community college based upon a petition from a city or county. An individual may elect to take the exemption during the first tax year the individual receives wages from a high-demand job designated in the bill or in the second tax year of receiving such wages. After the election as to what tax year to begin the exemption, the bill requires the individual to take the exemption for a total of five consecutive tax years if the person resides in a small city or small county, or three consecutive tax years if the person does not reside in such a city or county. The bill defines “small city” to mean a city with a population of less than 15,000 based upon the most recent federal decennial census. The bill defines “small county” to mean 1 of the 10 least populated counties in this state based upon the most recent federal decennial census. Generally, the bill provides that high-demand job wages are to be included in income to the extent previously exempted under any of the following circumstances: the individual ceases to have wages from a high-demand job in any tax year during the consecutive years the individual is required to work in a high-demand job; or the individual becomes a nonresident of this state within three or five years of first taking the exemption, as applicable. However, if an individual becomes disabled after taking the exemption and does not work in a high-demand job for the consecutive years as required by the bill, the individual is not required to include high-demand job wages as income to the extent previously exempted. The bill does not apply to an individual who has been a resident taxpayer during the tax year prior to the first tax year of taking the exemption, unless all of the following apply: the individual graduated from a community college, private college, private university, or regents institution in this state after the effective date of the bill; the individual is receiving wages from a high-demand job in this state; and the individual is a resident taxpayer. The bill requires the employer during each tax year an individual takes an exemption for a high-demand job to provide verification to the department of revenue that the individual is employed in such a job. The bill requires the department of revenue to report to the general assembly the types of job categories available for the high-demand job program in the bill, where the high-demand jobs are located, and the number of individuals who have elected to take the exemption under the bill beginning October 1, 2021. The bill requires the department of revenue to adopt rules to administer the provisions of the bill. The bill takes effect upon enactment and applies retroactively to January 1, 2019, for tax years beginning on or after that date.
Senate subcommittee
Named February 4, 2019. It hasn’t reported yet.
Three legislators hear a bill first and recommend what the committee should do; it’s the best time to weigh in. How to take part
Fiscal note
AI summary This bill exempts wages from state income tax for certain people working in high-demand jobs for three or five years. The policy is projected to reduce General Fund revenue and local option surtax for school revenue by $9.2 million in fiscal year 2020, $28.8 million in fiscal year 2021, $49.3 million in fiscal year 2022, $67.9 million in fiscal year 2023, and $89.0 million in fiscal year 2024. Additionally, the Department of Revenue expects one-time staff and programming expenses of $240,000.2
Read the fiscal note
Description
Senate File 164 exempts wages received through employment in high-demand jobs from the State individual income tax if the jobholder meets certain Iowa residency requirements. The exemption applies to new residents. A current resident of Iowa is not eligible for the income tax exemption unless the individual graduates from an Iowa community college, private college or university, or Regents institution after the effective date of the Bill. The income tax exemption period for qualified jobholders is three or five years. The length of the income tax exemption period is:
- Five years if the jobholder lives in one of Iowa’s 10 lowest populated counties.
- Five years if the jobholder lives in an Iowa city with a population of less than 15,000.
- Three years if the jobholder lives in a rural area of one of Iowa’s 89 highest populated counties.
- Three years if the jobholder lives in an Iowa city with a population of 15,000 or more. The definition of “high-demand job” has two components under the Bill:
- Iowa Code section 84A.1B(13A),1 as enacted in 2018 Iowa Acts, chapter 1067 (Future Ready Iowa Act), allows the Workforce Development Board to designate as “high-demand” jobs where work opportunities exist and qualified applicants are lacking. Each community college is also allowed to designate up to five regional high-demand jobs.
- Cities and counties may petition the relevant community college to designate a job category as a high-demand job. Each community college may designate up to 10 job categories as high-demand jobs.
The change applies retroactively to tax year (TY) 2019.
Assumptions
- Using Department of Workforce Development employment projections, the Department of Revenue developed estimates of the annual number of high-demand job openings that will occur in Iowa.
- Fifty percent of high-demand job openings will be filled each year.
- Ten percent of the job openings that are filled will not qualify for the tax exemption. It is assumed that these positions will be filled by Iowa residents who are not qualified graduates.
- Fifty-three percent of qualified jobholders will live in locations that qualify for a five-year tax exemption. The remainder will qualify for a three-year exemption.
- The Bill allows the qualified jobholder to choose when to start the tax exemption period. Thirty percent of qualified jobholders will choose the first year of employment as the first year of the tax exemption and 70.0% will choose the second year.
1 Iowa Code section 84A.1B(13A) is not effective until July 1, 2019.
- A portion (5.0% to 10.0%) of qualified jobholders will ultimately not benefit from the tax exemption due to other components of their income situation, such as business or capital losses.
The results of the previous assumptions are displayed in Table 1. The assumptions were used as inputs to the Iowa Department of Revenue income tax model. The model produced the projected reductions in income tax liability across all qualified jobholders by tax year. Table 2 provides the tax model results.
Tax Year
(TY)
Number of
High-
Demand
Job
Openings
Filled
Openings
Qualified
Filled
Openings
Small
City/County
Jobs, Five-
Year
Exemption
Three-
Year
Exemption
Number
Benefiting
From Tax
Exemption
Each Tax
Year
TY 2019 16,960 8,480 7,632 4,045 3,587 2,177 TY 2020 16,287 8,144 7,330 3,885 3,445 9,338 TY 2021 15,666 7,833 7,050 3,737 3,313 16,170 TY 2022 15,099 7,550 6,795 3,601 3,194 21,791 TY 2023 14,562 7,281 6,553 3,473 3,080 25,248 TY 2024 14,065 7,033 6,330 3,355 2,975 27,219 Table 1 Employment and Tax Exemption Qualification Assumptions
Tax Year
(TY)
Number
Benefiting
From Tax
Exemption
Each Tax
Year
Average
Tax Benefit
Per
Benefiting
Jobholder *
Total Income
Tax
Reduction in
Millions * TY 2019 2,177 2,784$ 6.1$ TY 2020 9,338 2,914 27.2 TY 2021 16,170 3,035 49.1 TY 2022 21,791 3,126 68.1 TY 2023 25,248 3,643 92.0 TY 2024 27,219 3,743 101.9 * The average and total tax reductions include the local option surtax for schools.
Table 2
Income Tax Reduction by Tax Year
Tax model results are converted to fiscal year State General Fund and local option surtax revenue impacts using the following assumptions:
- The contingent Iowa individual income tax system enacted in SF 2417 (2018 Tax Modifications Act) will become effective beginning TY 2023.
- Local option income surtax revenue represents 3.0% of the total tax benefit displayed in Table 2.
- Twenty-five percent of the revenue reduction will be in the form of reduced withholding tax receipts. The jobholders will realize the remaining benefit through increased tax refunds and decreased tax payments made when filing individual income tax returns for the tax year.
- The Bill requires eligible jobholders who become ineligible before the end of the three- or five-year exemption to add back to net income on their next income tax return the exempt income from previous years. It is assumed that 2.0% of the previous fiscal year’s tax benefit will be recovered through the income tax process due to lapses in jobholder eligibility (the jobholder quits the eligible job or is fired or otherwise becomes ineligible).
Fiscal Impact
The new tax exemption for qualified high-demand jobholders is projected to reduce net General Fund revenue and local option surtax for school revenue by the amounts listed in Table 3. The revenue reductions are projected to continue in future fiscal years, increasing at the rate of wage growth for qualified jobs.
The Department of Revenue reports that the one-time staff and programming expenses associated with implementing the new income tax credit will equal an estimated $240,000, and the Department will also need to assign compliance staff to audit the new exemption for fraud.
Fiscal
Year
Total
Income Tax
Reduction
General
Fund
Revenue
Reduction
Local
Option
Surtax
Revenue
Reduction
FY 2020 9.2$ 8.9$ 0.3$ FY 2021 28.8 27.9 0.9 FY 2022 49.3 47.8 1.5 FY 2023 67.9 65.9 2.0 FY 2024 89.0 86.3 2.7 Table 3
Income Tax Reduction by Fiscal Year
In Millions
Sources
- Department of Revenue
- Department of Workforce Development
- Legislative Services Agency analysis
- Income Tax Abatement, High-Demand Jobs · February 19, 2019