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 transitional tax brackets from the Iowa Department of Revenue. We apply marginal tax rates correctly, subtract the standard deduction, and calculate effective tax rates. As Iowa transitions to 3.9% flat tax, we note the projected future rate for comparison purposes.
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