House File 622 - Introduced HOUSE FILE 622 BY COMMITTEE ON COMMERCE (SUCCESSOR TO HSB 149) A BILL FOR An Act creating a catastrophic savings account and modifying 1 individual income taxes for account holders and including 2 applicability provisions. 3 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA: 4 TLSB 1949HV (2) 91 jm/jh
H.F. 622 Section 1. Section 422.7, Code 2025, is amended by adding 1 the following new subsection: 2 NEW SUBSECTION . 45. a. Subject to the restrictions of this 3 subsection, subtract the sum of the following amounts: 4 (1) The amount of contributions made by an account holder 5 during the tax year to the account holders catastrophic 6 savings account under chapter 541C, not to exceed the following 7 aggregate lifetime limits: 8 (a) For account holders whose annual homeowners property 9 and casualty insurance policy premium paid during the tax year 10 is less than one thousand dollars, an amount not to exceed two 11 thousand dollars. 12 (b) For account holders whose annual homeowners property 13 and casualty insurance policy premium during the tax year is 14 equal to or exceeds one thousand dollars, an amount not to 15 exceed the lesser of the following: 16 (i) Fifteen thousand dollars. 17 (ii) Twice the annual homeowners property and casualty 18 insurance policy premium paid during the tax year. 19 (c) For account holders who are self-insured, or choose not 20 to obtain a homeowners property and casualty insurance policy, 21 or are unable to obtain a homeowners property and casualty 22 insurance policy, an amount not exceeding three hundred fifty 23 thousand dollars, or the assessed value of the home, whichever 24 is less. 25 (2) To the extent included, income from interest received 26 from the account holders catastrophic savings account. 27 b. (1) The subtraction in paragraph a shall not be 28 allowed if funds are withdrawn from an account holders 29 catastrophic savings account and used for purposes other than 30 as allowed in this subsection or chapter 541C. 31 (2) Add, to the extent previously deducted under paragraph 32 a , the amount withdrawn during the tax year from an 33 account holders catastrophic savings account in excess of 34 an authorized payment for qualified catastrophic expenses 35 -1- LSB 1949HV (2) 91 jm/jh 1/ 10
H.F. 622 authorized in section 541C.3. 1 (3) If an account holder dies, the amount of money in the 2 catastrophic savings account shall be included in the taxable 3 income of the person who receives the account, unless that 4 person is the surviving spouse of the account holder. Upon 5 the death of the surviving spouse, the amount of money in 6 the account shall be included in the taxable income of the 7 person who receives the account. The additional tax imposed 8 in subparagraph (5) of this paragraph does not apply to a 9 distribution from the account upon the death of the account 10 holder or the surviving spouse. 11 (4) Except for certain deaths described in subparagraph 12 (3), if an account holder sells their homestead and does 13 not purchase a new homestead within six months of the sale, 14 the account holder shall include the amount of money in the 15 catastrophic savings account as taxable income in the year the 16 homestead is sold. 17 (5) For any amount considered a withdrawal required to be 18 added to net income pursuant this paragraph, the account holder 19 shall be assessed a penalty equal to two and one-half percent 20 of the amount of the withdrawal in excess of an authorized 21 payment for qualified catastrophic expenses. The penalty 22 shall not apply to withdrawals due to the death of the account 23 holder, or to withdrawals made pursuant to a garnishment, 24 levy, or other order, including but not limited to an order in 25 bankruptcy following a filing for protection under the federal 26 bankruptcy code, 11 U.S.C. 101 et seq. 27 (6) For purposes of this paragraph, the transfer of amounts 28 in order to change catastrophic savings account institutions 29 by the account holder shall not cause such transfer to be 30 considered a withdrawal to be added to net income pursuant this 31 paragraph. 32 c. Add, to the extent deducted for federal tax purposes, 33 interest, taxes, and other miscellaneous expenses to the extent 34 such amounts are qualified catastrophic expenses in connection 35 -2- LSB 1949HV (2) 91 jm/jh 2/ 10
H.F. 622 with a catastrophic loss that were paid or reimbursed from 1 funds in the catastrophic savings account. 2 d. For purposes of this subsection: 3 (1) Account holder means the same as defined in section 4 541C.2, regardless of filing status. 5 (2) Catastrophic savings account means the same as defined 6 in section 541C.2. 7 (3) Qualified catastrophic expense means the same as 8 defined in section 541C.2. 9 Sec. 2. NEW SECTION . 541C.1 Short title. 10 This chapter may be cited as the Catastrophic Savings 11 Account Act . 12 Sec. 3. NEW SECTION . 541C.2 Definitions. 13 As used in this chapter, unless the context otherwise 14 requires: 15 1. Account holder means an individual who is a resident 16 and who establishes, either individually or jointly with the 17 individuals spouse, a catastrophic savings account pursuant 18 to section 541C.3. 19 2. Catastrophic event means windstorms, cyclones, 20 earthquakes, ice storms, tornadoes, high winds, flood, hail 21 and force majeure, and similar perils not normally among those 22 covered under most property casualty insurance policies, but 23 obtainable through the purchase of wind, wind and hail, flood, 24 or storm or windstorm coverage, or any combination of those 25 coverages. The term catastrophic event also includes any 26 event for which a major disaster has been declared to exist by 27 the president of the United States or for which the governor 28 has proclaimed a state of disaster emergency. 29 3. Catastrophic savings account or savings account means 30 an account that meets the requirements of sections 541C.3 and 31 541C.4 and that was established for the purpose of paying or 32 reimbursing a designated beneficiarys qualified catastrophic 33 expenses. 34 4. Department means the department of revenue. 35 -3- LSB 1949HV (2) 91 jm/jh 3/ 10
H.F. 622 5. Designated beneficiary means an individual meeting the 1 requirements of section 541C.3, subsection 2, and designated 2 by an account holder as beneficiary of the account holders 3 catastrophic savings account pursuant to section 541C.3, 4 subsection 2. 5 6. Financial institution means the same as defined in 6 section 537.1301. 7 7. Homestead means the same as defined in section 425.11. 8 8. Individual means a natural person. 9 9. Qualified catastrophic expense means the payment of a 10 homeowners property and casualty insurance policy deductible 11 under an insurance policy covering the account holders 12 homestead, if the policy covers flood, windstorm, or another 13 catastrophic event, or the equivalent of such payments by an 14 uninsured account holder. 15 10. Resident means the same as defined in section 422.4. 16 Sec. 4. NEW SECTION . 541C.3 Catastrophic savings account. 17 1. a. Beginning January 1, 2026, an individual may open an 18 interest-bearing savings account with a financial institution 19 and designate the entire account as a catastrophic savings 20 account for the purpose of paying qualified catastrophic 21 expenses. The savings account designation shall be made 22 no later than April 30 of the year following the tax year 23 during which the account is opened, on forms provided by the 24 department. 25 b. An account holder shall not establish more than one 26 savings account. 27 2. a. The account holder shall designate one individual 28 as beneficiary of the savings account. The designation shall 29 be made on forms provided by the department and no later than 30 April 30 of the year following the tax year during which 31 the account is opened. The account holder may change the 32 designated beneficiary of the savings account at any time. 33 b. The account holder and designated beneficiary of a 34 savings account may be the same individual. 35 -4- LSB 1949HV (2) 91 jm/jh 4/ 10
H.F. 622 Sec. 5. NEW SECTION . 541C.4 Account administration 1 account holder responsibilities. 2 1. a. Contributions to an account may be made by any person 3 in the form of cash. The aggregate lifetime contribution 4 limitations that may be made to a savings account are as 5 follows: 6 (1) For account holders whose annual homeowners property 7 and casualty insurance policy premium paid during the tax year 8 is less than one thousand dollars, an amount not to exceed two 9 thousand dollars. 10 (2) For account holders whose annual homeowners property 11 and casualty insurance policy premium during the tax year is 12 equal to or exceeds one thousand dollars, an amount not to 13 exceed the lesser of the following: 14 (a) Fifteen thousand dollars. 15 (b) Twice the annual homeowners property and casualty 16 insurance policy premium paid during the tax year. 17 (3) For account holders who are self-insured, or choose not 18 to obtain a homeowners property and casualty insurance policy, 19 or are unable to a obtain homeowners property and casualty 20 insurance policy, an amount not exceeding three hundred fifty 21 thousand dollars, or the assessed value of the home, whichever 22 is less. 23 b. Interest accrued in the savings account shall not be 24 counted for purposes of calculating the aggregate lifetime 25 contribution limitations. 26 c. The aggregate lifetime contribution limitations of an 27 account holder may increase if an account holders homeowners 28 property and casualty homeowners insurance policy premium 29 increases as provided in paragraph a , but once an aggregate 30 lifetime limitation is achieved in paragraph a the aggregate 31 lifetime limitation is not required to decrease. 32 2. The account holder shall not use funds held in a savings 33 account to pay expenses, if any, of administering the account, 34 except that all fees and charges assessed by the financial 35 -5- LSB 1949HV (2) 91 jm/jh 5/ 10
H.F. 622 institution may be deducted from the account by the financial 1 institution where the account is held. 2 3. The account holder shall submit the following 3 information to the department: 4 a. An annual report for the savings account on forms 5 furnished by the department. The report shall be included with 6 the Iowa income tax return of the account holder. 7 b. A copy of the federal internal revenue service form 8 1099, or other similar federal internal revenue service income 9 reporting form, if any, issued for the savings account to the 10 account holder by the financial institution where the account 11 is held. The form shall be included with the Iowa income tax 12 return of the account holder. 13 c. Upon a withdrawal of funds from a catastrophic savings 14 account, a transaction report on forms furnished by the 15 department. 16 4. The account holder may withdraw funds from a savings 17 account at any time. 18 Sec. 6. NEW SECTION . 541C.5 Financial institution 19 protections. 20 This chapter shall not be construed to require a financial 21 institution to do any of the following, or to be responsible or 22 liable for any of the following: 23 1. Designate or label within the financial institutions 24 account contracts, systems, or in any other manner, an account 25 as a savings account. 26 2. Ascertain or verify the purpose of a withdrawal of funds 27 from a savings account, or track the destination or use of the 28 withdrawn funds. 29 3. Allocate funds in a savings account to a designated 30 beneficiary or among joint account holders. 31 4. Report any information to the department or any other 32 governmental agency. 33 5. Determine or ensure that an account satisfies the 34 requirements to be a savings account. 35 -6- LSB 1949HV (2) 91 jm/jh 6/ 10
H.F. 622 6. Determine or ensure that funds withdrawn from a savings 1 account are used for the payment of qualified catastrophic 2 expenses. 3 7. Report or remit taxes or penalties related to the 4 ownership or use of a savings account. 5 8. Include the name of a beneficiary in the title of a 6 savings account, or document the change of any beneficiary to 7 a savings account. 8 Sec. 7. NEW SECTION . 541C.6 Tax considerations. 9 The state income tax treatment of a savings account shall be 10 as provided in section 422.7, subsection 45. 11 Sec. 8. NEW SECTION . 541C.7 Rules and forms. 12 1. The department shall adopt rules to implement and 13 administer this chapter. 14 2. The department shall create and make available forms 15 to be used in complying with this chapter, including but not 16 limited to the following: 17 a. A form for designating an account as a savings account 18 pursuant to section 541C.3, subsection 1, paragraph a . 19 b. A form for designating an individual as beneficiary of 20 a savings account pursuant to section 541C.3, subsection 2, 21 paragraph a . 22 c. A savings account annual report as required in section 23 541C.4, subsection 3, paragraph a . The report shall require, 24 at a minimum, a list of transactions occurring on the account 25 during the tax year, and shall identify any supporting 26 documentation to be included with the report or maintained by 27 the taxpayer. 28 d. A transaction report as required in section 541C.4, 29 subsection 3, paragraph c , which report shall require, at a 30 minimum, information regarding the eligible home costs to which 31 any withdrawn funds were applied in connection with a qualified 32 home purchase, and information regarding the amount of funds 33 remaining, if any, in a catastrophic savings account. 34 Sec. 9. APPLICABILITY. This Act applies to tax years 35 -7- LSB 1949HV (2) 91 jm/jh 7/ 10
H.F. 622 beginning on or after January 1, 2026. 1 EXPLANATION 2 The inclusion of this explanation does not constitute agreement with 3 the explanations substance by the members of the general assembly. 4 This bill allows individuals who are residents, on or after 5 January 1, 2026, to open an interest-bearing savings account 6 with a state or federally chartered bank, savings and loan 7 association, credit union, or trust company in this state 8 and designate the account as a catastrophic savings account 9 (account) for the purpose of financing the payment of qualified 10 catastrophic expenses. 11 Qualified catastrophic expense is defined in the bill 12 to mean the payment of a homeowners property and casualty 13 insurance deductible under an insurance policy covering 14 the account holders homestead, if the policy covers flood, 15 windstorm, or another catastrophic event, or the equivalent of 16 such payments by an uninsured account holder. The bill further 17 defines catastrophic event. 18 The account may be established individually, or jointly 19 with a spouse if the married couple files a joint Iowa income 20 tax return. In order to properly establish the account, the 21 bill requires the account holder to submit certain forms to 22 the department of revenue (department) designating the account 23 as a catastrophic savings account (account), and designating 24 one beneficiary of the account (designated beneficiary). These 25 designation forms must be submitted no later than April 30 of 26 the year following the tax year during which the account is 27 opened. An individual may not establish more than one account. 28 The account holder may change the designated beneficiary at any 29 time, and may designate himself or herself as the beneficiary. 30 Contributions to an account may be made in the form of 31 cash by any person. Account funds shall not be used to pay 32 expenses, if any, of administering the account, except that 33 fees and charges may be deducted from the account by the 34 financial institution where the account is held. The bill 35 -8- LSB 1949HV (2) 91 jm/jh 8/ 10
H.F. 622 requires an account holder to submit certain reports to the 1 department, including an annual report for the account, a 2 transaction report upon a withdrawal of funds from the account, 3 and a copy of any federal internal revenue service form 1099 or 4 other similar income statement issued for the account. 5 The bill provides protection to financial institutions from 6 being required to perform, and from being responsible or liable 7 for, certain activities as described in the bill with respect 8 to accounts. The bill requires the department to create the 9 forms required to be filed by account holders, and to adopt 10 rules to implement and administer the bill. 11 The bill provides two individual income tax incentives 12 relating to the accounts. First, an account holder is allowed 13 to deduct from the individual income tax up to the aggregate 14 lifetime contribution limit amount. Second, the bill exempts 15 from the individual income tax any interest received from the 16 account holders accounts. For account holders whose annual 17 homeowners property and casualty insurance policy (policy) 18 premium paid during the tax year is less than $1,000, the 19 aggregate lifetime limit shall not exceed $2,000. For an 20 account holder whose annual policy premium during the tax year 21 is equal to or exceeds $1,000, the aggregate lifetime limit 22 shall not exceed the lesser of $15,000 or twice the annual 23 policy premium. For account holders who self-insure or who are 24 unable to obtain a policy, the aggregate lifetime limit shall 25 not exceed the lesser of $350,000 or the assessed value of the 26 home. The aggregate lifetime contribution limitations of an 27 account holder may increase if an account holders homeowners 28 property and casualty homeowners insurance policy premium 29 increases, but are not required to decrease. 30 The bill requires an account holder to add to net income 31 for purposes of calculating the individual income tax any 32 payment from the account that is not for qualified catastrophic 33 expenses (nonqualified withdrawal), but amounts transferred 34 between different accounts of the same account holder by 35 -9- LSB 1949HV (2) 91 jm/jh 9/ 10
H.F. 622 a person other than the account holder are not considered 1 nonqualified withdrawals. Nonqualified withdrawals required 2 to be added to net income are also subject to a penalty equal 3 to 2.5 percent of the nonqualified withdrawal, unless the 4 withdrawal was made by reason of the death of the account 5 holder, or was made pursuant to a garnishment, levy, or other 6 order, including an order in bankruptcy following a filing for 7 protection under the federal bankruptcy code. If an account 8 holder dies, the amount of money in the account shall be 9 included in the taxable income of the person who receives the 10 account, unless that person is the surviving spouse of the 11 account holder. Upon the death of the surviving spouse, the 12 amount of money in the account shall be included in the taxable 13 income of the person who receives the account. Upon the sale 14 of the homestead without the purchase of a new homestead within 15 six months of the sale, the bill also requires the amount of 16 money in the account to be included in the taxable income of 17 the account holder. 18 Finally, the bill prohibits the amount of qualified 19 catastrophic expenses that are paid or reimbursed from funds in 20 an account from being allowed as an itemized deduction for Iowa 21 individual income tax purposes. 22 The tax provisions of the bill apply to tax years beginning 23 on or after January 1, 2026. 24 -10- LSB 1949HV (2) 91 jm/jh 10/ 10