Iowa webinar: senior deduction, inheritance tax repeal and other federal changes, what filers need to know

Kurt Connick, Individual Income Tax Policy Director at the Iowa Department of Revenue, told a SourceLink webinar audience that several recent federal law changes will affect Iowa returns — but not always in the same way at the state level. “Nothing should be construed as legal advice,” Connick said, adding that binding guidance requires a petition for a declaratory order.

Connick said Iowa will treat federal changes that alter federal taxable income as the usual starting point for Iowa calculations; items that operate after federal taxable income — like certain credits — may not be adopted by the state. He pointed to the new senior deduction, telling attendees that taxpayers age 65 or older will be able to claim either a $6,000 or $12,000 exemption on their federal return and that Iowa will add a new line on the state 1040 to capture that amount. “That way we know that there’s retirement income that came in,” he said, explaining the administrative need for the new reporting line.

On estate and inheritance taxation, Connick announced that Iowa repealed its inheritance tax for tax years beginning on or after 01/01/2025 and urged filers and preparers to review earlier deferred-life-estate elections or outstanding inheritance returns. “If somebody passed away and they made the election to defer the payment of inheritance tax… make sure you get those returns into us,” he said.

Connick also summarized other federal items and Iowa’s approach:

- Information reporting: federal 1099-K thresholds changed; Connick noted the federal reporting threshold moved to $20,000 with an aggregate-transactions floor of 200 and that 1099-MISC/nonemployee compensation thresholds will change in tax year 2026; Iowa’s starting point remains federal taxable income.

- Withholding and wagering: Iowa’s W-2G withholding threshold remains $1,200; Connick said Iowa will follow federal W‑2G reporting requirements and did not change its withholding tables for tax year 2025.

- Credits and deductions: Connick said the increased child tax credit and some refundable enhancements at the federal level do not automatically apply to Iowa; conversely, provisions that affect federal taxable income (for example, certain QBI rules) often do change Iowa starting points.

- State law items: Connick called out several Iowa statutes and files affecting filing and reporting, including Senate File 605 (sports wagering withholding rules), Senate File 619 (disaster recovery housing grants administered by IEDA), and House File 976 (changes to retirement income treatment and an increased estimated tax threshold).

Why this matters: These distinctions determine what preparers must collect and where to place items on the Iowa return. Connick emphasized that some federal changes required new or relocated fields on Iowa forms — for example, the new place to report the senior deduction on the Iowa 1040 — because those entries affect multiple downstream calculations such as low-income exemptions, alternate tax, and health-insurance deductions.

What comes next: Slides and the webinar recording will be distributed to attendees and the Department advised preparers to consult Taxpayer Services for case-specific or binding questions. Connick also urged practitioners to review client files for legacy elections and to submit outstanding returns when needed.

Provenance: topicintro SEG 098, topfinish SEG 759.