Iowa Administrative Code › Agency 701 - Revenue Department › Title I - Administration › Chapter 39 - Filing Return and Payment of Tax › Rule 701-39.7 - Tax on Lump-sum Distributions

Current through Register Vol. 47, No. 3, July 24, 2024
For tax years beginning on or after January 1, 1982, Iowa
				  Code section
				  4225.
				  provides that in addition to the tax computed on the taxable income, a tax
				  shall also be imposed on the amount of a lump-sum distribution for which the
				  taxpayer has elected under Section 402(e) of the Internal Revenue Code to be
				  separately taxed for federal income tax purposes for the tax year. The rate of
				  this tax is 25 percent of the separate federal tax imposed on the amount of the
				  lump-sum distribution.
(1)
Exemption amounts.
a.
An exemption of $9,000 for single taxpayers and an exemption of $13,500
				for all other taxpayers.
To be eligible for the $9,000 or less
				exemption for single taxpayers and the $13,500 or less exemption for all other
				taxpayers as provided in Iowa Code section
				4225.,
				subsection 3, the total amount of a lump-sum distribution subject to the
				separate federal tax must be included in the net income. If this net income
				(including the lump-sum distribution income) is less than $9,000 for single
				taxpayers and less than $13,500 for all other taxpayers, then no tax (other
				than Iowa minimum tax) is due. The Iowa tax on lump-sum distributions and the
				computed tax may be limited to the amount of income tax that exceeds $9,000 for
				single taxpayers and $13,500 for all other taxpayers (including the lump-sum
				distribution income).
EXAMPLE: If the net income of a single taxpayer including a
				  lump-sum distribution was $9,030 and the computed tax and lump-sum tax was $50
				  after personal exemptions and out-of-state credit, the payment of $50 tax would
				  reduce the income below $9,000; therefore, the amount of tax due is reduced to
				  $30 in order for the taxpayer to retain a net income of $9,000.
b.
An exemption of $18,000
				for single taxpayers and an exemption of $24,000 for other taxpayers who are 65
				years of age or older.
These exemption amounts apply for tax years
				beginning on or after January 1, 2007, but before January 1, 2009. To be
				eligible for the $18,000 or less exemption for single taxpayers and the $24,000
				or less exemption for all other taxpayers as provided in 2007 Iowa Code section
				4225.,
				subsection 3A, the total amount of a lump-sum distribution subject to the
				separate federal tax must be included in the net income. If this net income
				(including the lump-sum distribution income) is less than $18,000 for single
				taxpayers and less than $24,000 for all other taxpayers, then no tax (other
				than Iowa minimum tax) is due. The Iowa tax on lump-sum distributions and the
				computed tax may be limited to the amount of income tax that exceeds $18,000
				for single taxpayers and $24,000 for all other taxpayers (including the
				lump-sum distribution income).
EXAMPLE: If the net income of a single taxpayer including a
				  lump-sum distribution was $18,200 and the computed tax and lump-sum tax was
				  $300 after personal exemptions and out-of-state credit, the payment of $300 tax
				  would reduce the income below $18,000; therefore, the amount of tax due is
				  reduced to $200 in order for the taxpayer to retain a net income of
				  $18,000.
For married persons filing jointly, filing separately on a
				  combined return or filing separate returns, only one spouse is required to be
				  65 years of age or older on December 31 of the tax year.
c.
An exemption of $24,000 for single
				taxpayers and an exemption of $32,000 for all other taxpayers who are 65 years
				of age or older.
These exemption amounts apply for tax years beginning
				on or after January 1, 2009. To be eligible for the $24,000 or less exemption
				for single taxpayers and the $32,000 or less exemption for all other taxpayers
				as provided in Iowa Code section
				4225.,
				subsection 3B, the total amount of a lump-sum distribution subject to the
				separate federal tax must be included in the net income. If this net income
				(including the lump-sum distribution income) is less than $24,000 for single
				taxpayers and less than $32,000 for all other taxpayers, then no tax (other
				than Iowa minimum tax) is due. The Iowa tax on lump-sum distributions and the
				computed tax may be limited to the amount of income tax that exceeds $24,000
				for single taxpayers and $32,000 for all other taxpayers (including the
				lump-sum distribution income).
EXAMPLE: If the net income of a single taxpayer including a
				  lump-sum distribution was $24,300 and the computed tax and lump-sum tax was
				  $500 after personal exemptions and out-of-state credit, the payment of $500 tax
				  would reduce the income below $24,000; therefore, the amount of tax due is
				  reduced to $300 in order for the taxpayer to retain a net income of
				  $24,000.
For married persons filing jointly, filing separately on a
				  combined return or filing separate returns, only one spouse is required to be
				  65 years of age or older on December 31 of the tax year.