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HEAD-TO-HEAD TAX COMPARISON · 2026

COUNTRY A Minnesota VS COUNTRY B Iowa

Side-by-side analysis of income tax, effective rates, and take-home pay for Minnesota and Iowa in 2026.

Daniel · CountryTaxCalc Updated June 2026 Tax Comparison 2026
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OVERVIEW
Iowa's landmark HB 2317 reform took effect in 2026, replacing a graduated system with a flat 3.9% rate — making it one of the most competitive income tax states in the Midwest. Minnesota, by contrast, remains a high-tax state with four progressive brackets topping out at 9.85% and an estate tax on estates above $3 million. At $100,000 income, an Iowa resident pays roughly $3,774 in state income tax compared to Minnesota's $4,990 — a $1,216 annual difference. That gap widens sharply at higher incomes: at $250,000, Iowa residents pay approximately $9,664 versus Minnesota's $17,160, a difference of $7,496 per year. For retirees, Iowa's advantage is exceptional: Social Security, 401(k), IRA, and pension income are all fully exempt for taxpayers aged 55 and older, making Iowa one of the most retirement-friendly states in the country. Minnesota taxes Social Security above $75,000 AGI and levies estate tax on estates over $3 million at 13%-16%. Property taxes partially offset the picture: Iowa averages 1.56% effective rate versus Minnesota's 1.02%, so homeowners pay more in Iowa on a given home value. High earners, retirees, and those with significant estates benefit most from Iowa's structure.
Section 01

The Big Picture

Top-line rates and effective take-home for a typical earner — including income tax, social contributions, and applicable surcharges.

🌲
COUNTRY A
Minnesota
TAX RATE
9.85%
High Progressive Tax
4 brackets: 5.35% / 6.80% / 7.85% / 9.85%
🌽
COUNTRY B
Iowa
TAX RATE
3.9%
Flat Rate Since 2026
Flat 3.9% on all Iowa taxable income (HB 2317 reform)
TYPICAL ANNUAL DIFFERENCE
Moving from Iowa → Minnesota at $100,000
$1,216
That's $101/month back in your pocket
Section 02

Tax Savings by Income Level

Net take-home after all income tax, social contributions, and surcharges — for a single employee with no dependents.
GROSS INCOME
🌲 MN TAX
🌽 IA TAX
SAVINGS
10-YEAR
$75,000
$3,347
$2,839
$508
$5,080
$100,000
$4,990
$3,774
$1,216
$12,160
$150,000
$8,780
$5,764
$3,016
$30,160
$250,000
$17,160
$9,664
$7,496
$74,960
💡

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🌲

Minnesota Pros & Cons

+ PROS
  • Strong public schools and universities
  • Robust healthcare system (Mayo Clinic)
  • Social Security exempt under $75K AGI
  • Groceries exempt from sales tax
  • Lower property tax than Iowa (1.02% avg)
− CONS
  • Top income tax rate of 9.85%
  • Estate tax on estates over $3M (13%-16%)
  • Social Security taxable above $75K AGI
  • One of the highest state income taxes in the Midwest
  • Capital gains taxed as ordinary income up to 9.85%
🌽

Iowa Pros & Cons

+ PROS
  • Flat 3.9% income tax rate — low for the Midwest
  • All retirement income exempt at age 55+ (SS, 401k, IRA, pension)
  • No estate tax
  • Capital gains taxed at just 3.9%
  • Groceries exempt from sales tax
− CONS
  • Higher property tax (1.56% average)
  • Smaller metro economies than Minneapolis-St. Paul
  • Standard deduction lower than Minnesota
  • Higher property tax raises the cost of homeownership
FAQ

Frequently Asked Questions

How much less income tax does Iowa charge compared to Minnesota in 2026?

At $100,000 income, Iowa residents pay approximately $3,774 in state income tax versus $4,990 in Minnesota — a saving of $1,216 per year. At $250,000 the gap grows to $7,496 per year, as Minnesota's 9.85% top bracket applies while Iowa stays flat at 3.9%.

When did Iowa switch to a flat income tax?

Iowa's flat 3.9% rate took effect on January 1, 2026, under House Bill 2317 — a major multi-year tax reform that phased down Iowa's previous graduated brackets over several years. All Iowa taxable income above the standard deduction is now taxed at exactly 3.9%.

Is retirement income taxed in Minnesota or Iowa?

Iowa is significantly more retirement-friendly. Taxpayers aged 55 and older pay zero Iowa income tax on Social Security, 401(k), IRA, and pension distributions. Minnesota taxes Social Security when AGI exceeds $75,000 (single filers) and has no general retirement income exemption for 401(k) or pension income.

Does Minnesota have an estate tax?

Yes. Minnesota levies estate tax at rates from 13% to 16% on estates valued above $3 million. Iowa has no estate tax. For residents with significant assets or family farms, this difference can represent a major planning consideration — and is one of the top reasons high-net-worth Minnesotans consult advisors about relocating.

Which state has higher property taxes — Minnesota or Iowa?

Iowa has higher average property taxes. The effective average rate in Iowa is approximately 1.56% of assessed value versus Minnesota's 1.02%. On a $300,000 home, that means roughly $4,680 per year in Iowa compared to $3,060 in Minnesota — a $1,620 annual difference that partially offsets Iowa's lower income tax.

How does sales tax compare between Minnesota and Iowa?

Minnesota charges 6.875% state sales tax, with most areas reaching 7%-8% after local additions. Iowa charges 6% state plus a standard 1% local option tax, totaling 7% in most jurisdictions. Both states exempt groceries from sales tax, which meaningfully reduces the burden on lower-income households.

At what income level does Iowa become a much better deal than Minnesota?

Iowa's advantage grows with income because Iowa is flat (3.9%) while Minnesota is progressive (up to 9.85%). At $75,000, the difference is modest at around $508/year. At $150,000 it reaches $3,016/year, and at $250,000 it exceeds $7,496/year. For retirees of any income level, Iowa's complete retirement income exemption at age 55+ often produces far larger savings than the income table alone suggests.

Are capital gains taxed differently in Minnesota vs Iowa?

Both states tax capital gains as ordinary income, but the rates differ substantially. Iowa applies its flat 3.9% rate to capital gains. Minnesota taxes capital gains under its progressive schedule, meaning long-term gains can be taxed at up to 9.85% — the same as wages. For investors with significant capital gains, Iowa offers a meaningful advantage.
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