Relating to the establishment of a new deduction for any income of an employee resulting from the payment by an employer on the employee’s qualified education loan and including effective date and retroactive applicability provisions

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Where it is now

Done: IntroducedFebruary 7, 2019
Done: SubcommitteeFebruary 12, 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 changes the effective date for a new deduction for any income of an employee resulting from the payment by an employer, whether paid to the employee or a lender, of principal or interest on the employee’s qualified education loan. Currently, the new deduction is set to begin in tax year 2023 or in a later tax year, contingent upon the satisfaction of certain net general fund revenue amount and growth targets. The bill moves up the effective date for this new deduction to tax years beginning on or after January 1, 2019.

Read the full explanation

In order to move up the effective date for the new deduction, the bill strikes 2018 Iowa Acts, chapter 1161, section 112. However, there is an unrelated provision to the new deduction in 2018 Iowa Acts, chapter 1161, section 112, thus the bill reinserts the unrelated provision in order to preserve this provision. Federal income tax law does provide a limited deduction for a taxpayer’s payment of interest on qualified education loans, and the bill disallows the new Iowa deduction for any amount of income that represents an interest payment that was also deducted by the employee in computing federal taxable income. The bill defines “qualified education loan” to mean the same as defined in section 221 of the Internal Revenue Code.

Full bill text¹

Senate subcommittee

Named February 12, 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 allows taxpayers to deduct payments made by their employers toward education loans from their Iowa income tax. It is projected to decrease net General Fund revenue by $1.3 million in fiscal year 2020, $1.2 million in fiscal year 2021, $1.2 million in fiscal year 2022, and $1.0 million in fiscal year 2023. The bill does not have a projected impact beyond fiscal year 2023.²

Read the fiscal note

Description

Senate File 214 allows a taxpayer to deduct employer-paid education loan payments from income subject to Iowa individual income tax. The change applies to tax years beginning on or after January 1, 2019.

The change will make such employer payments exempt from Iowa income tax for tax year (TY) 2019 through the last tax year prior to the implementation of the contingent income tax system established in SF 2417 (2018 Tax Modifications Act). The new tax system is contingent upon General Fund revenue meeting a dollar goal and an annual growth goal. The first year the contingent tax system could be implemented is TY 2023. Employer-paid education loan payments are exempt from Iowa income tax in the contingent tax system, so this Bill would only apply to tax years prior to the implementation of the contingent tax system.

Assumptions

The Department of Revenue utilized the income tax micro model developed for the 2019 Legislative Session to estimate the tax year impacts of the Bill. The following variables were used in the model to estimate the impact of the Bill:
One percent of taxpayers aged 18 to 64 and reporting wage income will receive employer-paid education loan assistance each tax year (15,249 individuals each year).
The employer-paid education loan assistance will equal $1,200 per year for benefiting employees. With 15,249 individuals benefiting at $1,200 per year, the amount of the deduction will total $18.3 million for TY 2019.
The projected average income tax reduction for the 15,249 individuals is $73. This average is projected to increase by 3.0% each tax year.
For the projection, implementation of the contingent income tax system is assumed to occur for TY 2023.
For the first year (TY 2019), 5.0% of benefiting individuals will reduce withholding and estimate payments in response to the new exemption. In future tax years, 30.0% of individuals will do so.