Governor Branstad signed Senate File 303 on May 26, 2014, which provides for the exclusion of military retirement benefits from Iowa individual income tax retroactive to the tax year beginning on or after January 1, 2014.
The exclusion also applies to military survivor benefits received under 10 U.S.C. 1447. The exemption is available for both residents and nonresidents of Iowa.
The exemption is in addition to the general $6,000/$12,000 pension exclusion available for Iowa individual income tax for taxpayers 55 years of age or older.
For example, if a married individual age 65 receives $20,000 in military retirement pay and $25,000 in pension income from John Deere, that individual will be able to exclude $32,000 ($20,000 plus $12,000) of pension income on their Iowa income tax return.
Retroactive to January 1, 2014
Because the change is retroactive to January 1, 2014, individuals receiving military retirement benefits may immediately change or eliminate the amount of Iowa tax being withheld on their military pension.