Iowa Administrative Code › Agency 701 - Revenue Department › Title I - Administration › Chapter 40 - Determination of Net Income › Rule 701-40.80 - Exemption for Military Retirement Pay

Current through Register Vol. 47, No. 3, July 24, 2024
For tax years beginning on or after January 1,2014,
				  retirement pay received by taxpayers from the federal government for military
				  service performed in the armed forces, armed forces reserves, or national guard
				  is exempt from state income tax. In addition, amounts received by a surviving
				  spouse, former spouse, or other beneficiary of a taxpayer who served in the
				  armed forces, armed forces reserves, or national guard under the Survivor
				  Benefit Plan are also exempt from state income tax for tax years beginning on
				  or after January 1, 2014. The retirement pay is only deductible to the extent
				  it is included in the taxpayer's federal adjusted gross income.
(1) Coordination with pension exclusion. The
				exclusion of retirement pay is in addition to the partial exclusion, provided
				in rule
				701-4047.
				(422), of pensions and other retirement benefits for disabled individuals,
				individuals who are 55 years of age or older, surviving spouses and survivors.
				In addition, taxpayers who receive retirement pay under federal law that
				combines retirement pay for both uniformed service and the federal civil
				service retirement system or federal employees' retirement system must prorate
				the retirement pay based on years of service.
Example 1: A married individual who is 60 years of age
				  receives $20,000 of federal retirement pay from military service and $30,000 in
				  retirement pay from the Iowa public employees' retirement system during the
				  2014 tax year. The taxpayer can exclude $20,000 of military retirement pay and
				  $12,000 as a pension exclusion under rule
				  701-4047.
				  (422), for a total exclusion of $32,000 on the taxpayer's Iowa individual
				  income tax return for the 2014 tax year.
Example 2: A single taxpayer who is 65 years of age receives
				  $60,000 as a federal pension during the 2014 tax year. The taxpayer has 20
				  years of military service and 27 years of civilian employment with the federal
				  government. The military retirement pay portion is $25,532 (20 years divided by
				  47 years multiplied by $60,000). The taxpayer can exclude $25,532 of military
				  retirement pay and $6,000 as a pension exclusion under rule
				  701-4047.
				  (422), for a total exclusion of $31,532 on the taxpayer's Iowa individual
				  income tax return for the 2014 tax year.
(2) Coordination with filing threshold and
				alternate tax. The military retirement pay is excluded from the calculation of
				income used to determine whether an Iowa income tax return is required to be
				filed pursuant to 701-subrules 39.1(1) and 39.5(10) through 39.5(13). In
				addition, the military retirement pay is excluded from the calculation of the
				special tax computation for all low-income taxpayers except single taxpayers
				pursuant to rule
				701-399.
				(422) and is excluded from the calculation of the special tax computation for
				taxpayers who are 65 years of age or older under rule
				701-3915.
				(422).
(3) Iowa withholding. The
				amount of military retirement pay is excluded from the calculation of payments
				used to determine whether Iowa tax should be withheld from pension and annuity
				payments as determined pursuant to 701-subrule 46.3(4).
This rule is intended to implement Iowa Code sections
				  4225.
				  and 422.7 as amended by 2014 Iowa Acts, Senate File 303.