Navigating the complexities of state taxes can be daunting, but understanding Iowa's tax landscape is essential for residents and newcomers alike.
In this guide, we'll explore key components of The Hawkeye State's tax system, from income and sales taxes to property taxes and retirement benefits.
Iowa state tax: Overview
Iowa residents will see lower tax bills this year, thanks to a drop in the state’s income tax rate. A major tax reform brings the top rate down to a flat 3.9% as of 2026, putting Iowa among the states with the lowest personal income taxes. That is quite a shift from just a few years ago.
The state also doesn't tax qualified pension income or inheritances, making it especially appealing for retirees. Of course, with lower taxes, there is always the question of how public services will be funded. But for now, let’s take a closer look at Iowa’s changing tax landscape.
[Data for this state tax guide was gathered from several sources including the U.S. Census Bureau, the state’s government website, the Sales Tax Handbook, and the Tax Foundation. Property taxes are cited as a rate percentage rather than the assessed value.]
Iowa income tax
Iowa adopted a single individual income tax rate in 2025, lowering the top rate from 5.7% to a flat 3.8%. That’s significantly lower than the peak rate of nearly 9% about six years ago, when state lawmakers first began reducing the personal income tax.
According to state documents, a flat individual income tax rate of 3.8% is in effect for 2026. Reducing the income tax is expected to bring in nearly $1 billion in tax savings for Iowans within the first two years.
As reported by Kiplinger, the measure adds the state to the 14 states that have a flat income tax rate, which has also earned the state a spot among the lowest income taxes in the nation.
Update: As of 2026, sports betting winnings will be considered as earned income. If federal taxes must be withheld, the sportsbook or payor will withhold income taxes before you get paid.
Iowa retirement taxes
Iowa recently made retirement income tax-exempt for residents 55 and older and eliminated its inheritance tax for tax years 2025 and later.
- Social Security: Not taxable
- Pensions: Not taxable
- 401k and IRA Distributions: Not taxable
Iowa sales tax
Iowa has a state sales tax rate of 6%. Localities can add as much as 0.94%, and the average combined rate is 6.94%, according to the Tax Foundation.
- Groceries: Exempt
- Prescription drugs: Exempt
- Clothing: Taxable
- Diapers and some feminine hygiene products: Exempt
How much are property taxes in Iowa?
In Iowa, the average effective property tax rate is 1.24% (2026).
The property tax cycle in Iowa happens across eighteen months. Residents and property owners get an individual assessed value of their property on January 1. The first half payment for property taxes is due in the fall of the next year, and the remaining portion is paid in the spring.
That means the assessment for January 2025 would be associated with taxes due in the fall of 2026 and the spring of 2027, according to Iowa’s Department of Revenue.
Iowa Property Tax Breaks for Retirees
Iowa introduced a new Homestead Tax Exemption for Claimants 65 Years or Older last year. For the 2025 assessment year, the exemption (amount excluded from a property's taxable value) is worth $6,500.
Additionally, military service tax exemptions were raised to $4,000 in taxable value for assessment years on or after January 1, 2023.
Iowa gas tax
Iowa has close to the lowest gas tax rates in the nation, making it a good choice for commuters.
Gasoline |
$0.31 per gallon |
Diesel |
$0.33 per gallon |
Source: Sales Tax Handbook
Iowa taxes on alcohol and tobacco
Product |
Tax amount |
|---|---|
Cigarettes |
$1.36 per pack of 20, $1.70 per pack of 25 |
Other tobacco products |
50% of wholesale price |
Medical Marijuana |
0% |
Source: Sales Tax Handbook
Product |
Tax amount |
|---|---|
Beer |
$0.19 per gallon |
Wine |
$1.75 per gallon |
Liquor |
State Controlled |
Source: Sales Tax Handbook
Iowa estate and inheritance taxes
Iowa started phasing out its inheritance tax three years ago by reducing the rate of tax by 20% each year (the original base rates ranged from 5% to 15%).
The tax has been completely repealed as of January 1, 2025.
