Iowa House Bill HF2638

Iowa 2023-2024 Regular Session

• Introduced: 2/28/24
• Engrossed: 3/26/24
• Refer: 3/26/24

Caption

A bill for an act excluding nonqualified deferred compensation income from the individual income tax, and including retroactive applicability provisions.(Formerly HF 2105.)

Impact

The enactment of HF2638 will result in notable modifications to Iowa's tax laws. It aims to create a consistent framework for individuals receiving nonqualified deferred compensation, thereby reducing the tax burden for eligible taxpayers. This change could incentivize saving for retirement and encourage individuals to defer compensation as part of their financial planning strategies. Additionally, by allowing retroactive applicability from January 1, 2024, the bill ensures immediate benefits for taxpayers who meet the criteria for exclusion in the current tax year, thus possibly aiding in tax compliance and planning among the affected population.

Summary

House File 2638, introduced by the Committee on Ways and Means, proposes to amend the existing tax code regarding the exclusion of nonqualified deferred compensation income from individual income taxation. The bill allows certain individuals, specifically those who are disabled, aged 55 or older, or surviving spouses, to exclude up to $500,000 of nonqualified deferred compensation from their taxable income. This exclusion mirrors the provisions available for retirement income, enhancing financial relief for qualifying individuals. The bill serves to provide favorable tax treatment for deferred compensation, which is often structured to benefit particular employees without federal limitations on deferral amounts.

Contention

While HF2638 has not elicited significant public controversy, its implications may stir discussions regarding tax equity and the treatment of various income sources. Critics could argue that favoring deferred compensation introduces disparities in tax treatment between those with access to these compensation structures and those reliant solely on standard income sources. Furthermore, as the bill updates provisions related to existing tax codes, there may be debates surrounding the overall fiscal impact on state revenues and how these shifts align with broader tax policy goals.

Voting_history

HF2638 successfully passed the voting process with strong bipartisan support, receiving 95 votes in favor and none against. The decisive approval indicates a general consensus among lawmakers on the importance of supporting retirees and individuals with deferred compensation plans, as well as acknowledges the benefits that tailored tax provisions can confer to specific populations.