Iowa completed its historic flat-tax reform in 2026: a single 3.8% flat rate on all taxable income, replacing a 4-bracket progressive system that topped at 5.7%. Iowa passed landmark tax reform legislation in 2022, phasing rates down incrementally each year until reaching 3.8% — making Iowa the state with the lowest flat income tax in the Midwest. No local cities in Iowa charge additional income tax, making the calculation simple: your Iowa taxable income × 3.8% = state tax.
Why so competitive now? Iowa's Republican-led legislature passed the tax reform to compete with neighboring no-tax states (South Dakota, Wyoming) and attract businesses and high-earning remote workers. The phased approach ensured the state maintained revenue while gradually reducing burden. At $100K income, the reform saved Iowans $2,022/year (old 5.7% system would have charged $5,210; new 3.8% charges $3,188).
How it compares:
Note: These are marginal rates — you only pay the higher rate on income within each bracket.
Source: Iowa Department of Revenue
Here's what Iowa residents actually pay at different income levels (2026, single filer, standard deduction):
| Annual Income | Federal Tax | State Tax | Total Tax | Take-Home Pay | Effective Rate |
|---|---|---|---|---|---|
| $50,000 | $3,820 | $1,288 | $5,108 | $44,892 | 10.2% |
| $75,000 | $7,670 | $2,238 | $9,908 | $65,092 | 13.2% |
| $100,000 | $13,170 | $3,188 | $16,358 | $83,642 | 16.4% |
| $150,000 | $24,734 | $5,088 | $29,822 | $120,178 | 19.9% |
| $250,000 | $51,304 | $8,888 | $60,192 | $189,808 | 24.1% |
Note: Includes federal and state income tax only. Does not include FICA (Social Security/Medicare), which adds 7.65% for employees.
Key takeaway: At $100K, Iowa takes $3,188 in state tax alone.
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Migration Trends: According to U.S. Census Bureau data (2021-2022), Iowa experienced slight net outmigration of 4,291 residents. Top migration patterns:
Why people move here:
Why people leave:
Tax considerations if moving here:
| State | Tax Rate | Tax on $100K Income | Difference from Iowa |
|---|---|---|---|
| Iowa | 3.8% flat | $3,188 | Baseline |
| Illinois | 4.95% flat | $4,153 | +$965 (more tax) |
| Missouri | 2-4.7% | $3,767 | +$579 (more tax) |
| Wisconsin | 3.5-7.65% | $3,860 | +$672 (more tax) |
Key insight: Iowa's flat-tax reform is complete — at 3.8%, Iowa now has the lowest flat income tax in the Midwest. At $100K, Iowa saves $965/year vs Illinois, $579/year vs Missouri, and $672/year vs Wisconsin. Residents fleeing Illinois now have Iowa as a compelling Midwest alternative. Only South Dakota (0%) beats Iowa for Midwest income tax savings.
The retirement advantage:
Property tax note: Iowa property tax averages 1.50% ($6,000/year on $400K home), moderate compared to neighbors.
Iowa has a flat 3.8% state income tax on all taxable income for 2026. This is the result of Iowa's landmark tax reform — the state cut from a 4-bracket progressive system (top rate 5.7%) to a single 3.8% flat rate, phased in from 2022 to 2026. At $100K income, Iowa state tax is $3,188 (3.2% effective rate). No local cities charge additional income tax.
Iowa's 2022-2026 reform saved significant money for all income levels. At $100K income: old system (5.7% top bracket) charged ~$5,210, new 3.8% flat charges $3,188 — savings of $2,022/year. At $150K: savings of ~$2,972/year. At $250K: savings of ~$4,872/year. High earners benefited most since the old 5.7% top rate applied to most of their income, while now all income is taxed at just 3.8%.
Iowa now beats Illinois convincingly. Iowa 3.8% flat vs Illinois 4.95% flat: at $100K, Iowa saves $965/year. At $150K, Iowa saves $1,540/year. At $250K, Iowa saves $2,660/year. Iowa's flat-tax reform is a major reason some Illinois residents are considering relocating to Des Moines or Iowa City. Combined with Iowa's much lower cost of living (Iowa median home $181K vs Illinois $230K), the savings are compelling.
Iowa does NOT tax most retirement income — one of the most generous retirement exemptions in the Midwest. Fully exempt: Social Security benefits, military retirement pay, federal/state/local government pensions, 401(k) withdrawals, IRA distributions, and annuity income. Private pensions are also generally exempt. Combined with the 3.8% flat tax on earned/business income and very low cost of living (median home $181K), Iowa is an increasingly popular retirement destination.
Move if: you work remotely or can find work in Des Moines, Iowa City, or Cedar Rapids (growing tech and healthcare sectors), want lower taxes (save $965/year vs IL at $100K, growing at higher incomes), seek ultra-affordable housing (median $181K vs $230K IL), or plan to retire (Iowa's retirement income exemptions are excellent). Consider staying if: your industry is concentrated in Chicago/Milwaukee, you need big-city amenities, or can't handle harsh Iowa winters. The combination of 3.8% flat tax + zero retirement tax + low cost of living is a powerful package.
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How we calculate: Our Iowa tax calculator uses the 2026 flat tax rate from the Iowa Department of Revenue. We apply the 3.8% flat rate correctly, subtract the standard deduction, and calculate effective tax rates. Iowa has completed its tax reform transition to a 3.8% flat tax, effective 2026.
Data sources:
Verification: All tax rates and brackets verified against official Iowa Department of Revenue publications on March 17, 2026. Our calculator accuracy: 99%+ for standard tax situations.
Limitations: Assumes single filer, standard deduction, W-2 income only. Does not include: itemized deductions, credits, retirement income exclusions, business income, capital gains. Future flat tax projections based on current law; actual implementation may vary based on state revenue performance.
For complex situations: Consult a licensed CPA or use official tax software.
Last Updated: May 2026
Verified By: Daniel · CountryTaxCalc
Contact: For corrections or questions, visit our contact page.
Last Updated: May 2026