HSB 174

3146 billion, and also equaling or exceeding 104 percent of the net general fund revenues for the fiscal year ending June 30, 2021. If these two conditions are not satisfied, current law institutes the changes for tax years beginning on or after the January following the first fiscal year for which the two conditions do occur. By striking the “trigger”, the bill sets in motion numerous tax changes for tax years beginning on or after January 1, 2023, described below. INDIVIDUAL INCOME TAX.50% For a married couple filing a joint return, the taxable income amounts in each bracket above are doubled. Also, the taxable income amounts in each bracket above will be indexed to inflation and increased in future tax years, beginning in the tax year following the 2023 tax year. INDIVIDUAL INCOME TAX CALCULATION. Under current law, the starting point for computing the Iowa individual income tax is federal adjusted gross income before the net operating loss deduction, which is generally a taxpayer’s gross income minus several deductions. From that point, Iowa requires several adjustments and then provides taxpayers with a deduction for federal income taxes paid, and the option to deduct a standard deduction or itemized deductions. _____ earned from a pass-through entity. Because the starting point changes to federal taxable income, and federal law does not provide for the filing status of married filing separately on a combined return, the bill repeals that filing status option for Iowa tax purposes. Because net operating loss is no longer calculated at the state level, the bill requires a taxpayer to add back any federal net operating loss deduction carried over from a taxable year beginning prior to the 2023 tax year, but allows taxpayers to deduct any remaining Iowa net operating loss from a prior taxable year. The bill repeals the individual alternative minimum tax (AMT), allows an individual to claim any remaining AMT credit against the individual’s regular tax liability for the 2023 tax year, and then repeals the AMT credit in the tax year following the 2023 tax year. The bill repeals most Iowa-specific deductions, exemptions, and adjustments currently available when computing net income and taxable income under Iowa law, including the Iowa optional standard deduction and all itemized deductions, and the ability to deduct federal income taxes, except for a one-year phase out in the 2023 tax year for taxes paid, or refunds received, that relate to a prior year. The bill maintains the add-back for income from securities that are federally exempt but not state-exempt, and for bonus depreciation amounts. The bill maintains the general pension exclusion and the deduction for income from federal securities. The bill maintains the deduction for contributions to the Iowa 529 plan, the Iowa ABLE plan, a first-time homebuyer savings account, and an individual development account. _____ AmeriCorps education award payments.7(29) to make the deduction only applicable to taxpayers who are at least years old and who have net income below $100,000.7(21) to restrict the deduction to the sale of real property used in farming businesses by permitting the taxpayer to take the deduction if either of the following apply: the taxpayer materially participated in the farming business for at least years and held the real property for at least years; or the taxpayer sold the real property to a relative. The bill expands the definition of “relative” to include an entity in which a relative of the taxpayer has a legal or equitable interest in the entity as an owner, member, partner, or beneficiary. The bill provides 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.13, to require that any amount of itemized deduction, standard deduction, personal exemption deduction, or qualified business income deduction that was allowed in computing federal taxable income shall be added back. CORPORATE INCOME TAX AND FRANCHISE TAX CALCULATION. Under current law, the starting point for calculating the corporate income tax and franchise tax is federal taxable income before the net operating loss deduction, because net operating loss is calculated at the state level. The bill repeals the separate calculation of net operating loss at the state level. _____ deduct any remaining Iowa net operating loss from a prior taxable year. The bill also repeals most Iowa-specific deductions, exemptions, and adjustments currently available when computing net income and taxable income under Iowa law. The bill maintains the add-back for income from securities that are federally exempt but not state exempt, and for bonus depreciation amounts. The bill maintains the deductions for income from federal securities, for foreign dividend and subpart F income, for certain wages paid to individuals with disabilities or individuals previously convicted of a felony, and for biodiesel production refunds. DIVISION II —— INSTALLMENT SALES —— CAPITAL GAINS.7(21).7(21) is amended when the trigger occurs in 2018 Iowa Acts, chapter 1161, section 113. The capital gain deduction in 2018 Iowa Acts, chapter 1161, section 113, was further amended by 2019 Iowa Acts, chapter 162. Division I of the bill removes the triggers and specifies that 2018 Iowa Acts, chapter 1161, sections through 132, take effect January 1, 2023, including the changes to the capital gain deduction mentioned above.7(21). DIVISION III —— COVID-19 RELATED GRANTS —— TAXATION. The bill excludes from the calculation of Iowa individual and corporate income tax any qualifying COVID-19 grant issued to an individual or business by the economic development authority, the Iowa finance authority, or the department of agriculture and land stewardship. _____ that was issued under a grant program administered by the economic development authority, Iowa finance authority, or the department of agriculture and land stewardship to provide financial assistance to individuals and businesses economically impacted by the COVID-19 pandemic. Under current law, financial assistance grants provided to small businesses by the economic development authority under the Iowa small business COVID-19 relief grant program are excluded from the calculation of Iowa individual and corporate income tax. The COVID-19 grant income tax exclusion provided in the bill is repealed on January 1, 2024, and does not apply to tax years beginning on or after that date. The division takes effect upon enactment and applies retroactively to March 23, 2020, for tax years ending on or after that date. DIVISION IV —— HOOVER PRESIDENTIAL LIBRARY TAX CREDIT. The bill creates a Hoover presidential library tax credit available against the individual, corporate, franchise, insurance premium, and moneys and credits taxes. The amount of the credit shall equal percent of a person’s donation during a tax year to the Hoover presidential foundation for the Hoover presidential library and museum renovation project fund, an organization exempt from federal taxation. The bill specifies that the amount of the donation for which the tax credit is claimed shall not be deductible for state income tax purposes. A credit provided in the bill in excess of tax liability is not refundable but the excess for the tax year may be credited to a person’s tax liability for the following five years or until depleted, whichever occurs first. The tax credit shall not be carried back to a tax year prior to the tax year in which the person claims the tax credit. _____ the bill shall not exceed $4 million. The maximum amount of tax credits granted to a person shall not exceed percent of the aggregate amount of tax credits authorized under the bill. The bill provides that percent of the aggregate amount of tax credits authorized shall be reserved for those donations in amounts of $30,000 or less. If any portion of the reserved tax credits have not been distributed by September 1, 2024, the remaining reserved tax credits shall be available to any other eligible person. The bill prohibits the transfer of the credit to any other person. The bill requires the economic development authority to develop a system for authorization of tax credits and shall control the distribution of all tax credits to persons providing a donation subject to this Code section. The bill applies to tax years beginning on or after January 1, 2022, but before January 1, 2025. The tax credit is repealed December 31, 2030, to account for the carryforward of any excess credit that may be credited to the person’s tax liability for up to five years. DIVISION V —— FEDERAL PAYCHECK PROTECTION PROGRAM. Under current law, for the tax year 2020 and later, Iowa law fully conforms with the federal treatment of forgiven paycheck protection program loans and excludes such amounts from net income and allows certain deductions for business expenses paid using those loans. For fiscal-year filers who received paycheck protection program loans during the 2019 tax year, current law excludes such amounts from net income, but does not allow certain deductions for business expenses paid using those loans. The bill fully conforms with federal law for those fiscal-year filers who previously were excluded from such conformity and allows such filers to take business expense deductions using federal paycheck protection program loan proceeds that were forgiven.