A bill for an act relating to individual income taxation by exempting certain amounts received from nonqualified deferred compensation plans and including retroactive applicability provisions.(Formerly HF 94.)

Iowa House File 961 (HF961) proposes to exempt up to $500,000 of income received from nonqualified deferred compensation plans from state individual income tax. This exemption applies to taxpayers who are disabled, 55 years of age or older, or the surviving spouse or survivor with an insurable interest of an individual who would have qualified. The bill includes retroactive applicability provisions, making it effective for tax years beginning on or after January 1, 2025.

Supporters of HF961 argue that the bill provides significant tax relief to retirees and individuals with disabilities, allowing them to retain more of their deferred compensation savings. This financial relief is seen as a way to support the financial stability of these groups, acknowledging their contributions and circumstances.

Critics of HF961 express concerns about the potential reduction in state tax revenues due to the substantial exemptions proposed. They argue that this could impact funding for essential public services and programs. Additionally, there is concern that the bill primarily benefits higher-income individuals who are more likely to have substantial nonqualified deferred compensation plans, potentially exacerbating income inequality.