Iowa general fund receipts down $334 million through May 1; refunds and tax changes cited

Eric Richardson, senior fiscal analyst with the nonpartisan Iowa Legislative Services Agency, said the state’s net general fund revenue is down $334 million, or about 5.1%, on a fiscal-year basis through May 1.

"Revenue has decreased $334 million on a fiscal year basis or negative 5.1% year to date," Richardson said in the agency’s April 2026 monthly video memo. He attributed much of the slowdown to weaker individual income-tax collections and to a large decline in tax refunds issued from the general fund.

The agency reported that net individual income tax receipts have fallen year-to-date (Richardson reported a decline of about 9.8%), while net corporate income tax receipts were down roughly 30% and net insurance and other taxes declined about 1.6%. At the same time, net sales and use tax receipts rose, with use tax singled out as a particularly strong area of growth.

Richardson noted $13.5 million in FY2026 gross cigarette and tobacco tax revenue is currently being held in the general fund and is expected to be transferred to the Health Care Trust Fund, which would reduce the "other taxes" category in net receipts.

The analyst described the interaction between gross receipts and refunds: gross revenues through May 1 were down 7.2%, but net revenue declined less because refunds issued from the general fund were 23.7% lower year-to-date. "Income tax refunds have decreased by $31 million and negative 30.1% in FY2026 compared to FY2025," Richardson said, calling the reduction in refunds a major factor that has temporarily strengthened year-to-date revenue compared with last year.

Richardson also discussed the normalization of pass-through entity (PTE) tax credits after an initial large processing year: "Pass through entity tax credits, including individual income tax refunds, have decreased significantly in FY2026, as the PTE has normalized after the first full year of revenue and tax credits in FY2025." He reiterated that the PTE began in FY2024 but was retroactive to tax year 2022, producing outsized initial payments processed in FY2025.

Comparing month-to-month, Richardson said growth through May 1 is $118 million higher than the growth calculated through April 1, with a $159 million decrease in individual income tax refunds since April 1 being the main driver of that change. He added that personal income tax growth has decreased by $51 million since April 1 while sales and use tax growth increased by $28 million.

Despite the year-to-date decline, Richardson said the pace of net revenue growth through May 1 remains above the most recent Revenue Estimating Conference projection for the full fiscal year, even though that REC projection shows a decline for the year (the REC estimate cited was negative 9.5% for total net receipts excluding transfers).

He identified a recent policy change as a central longer-term factor: the state's enactment of a flat 3.8% individual income tax rate effective Jan. 1, 2025. "The major driver of the overall revenue slowdown in FY 2026 is a decrease in individual income tax primarily due to the state's enaction of a flat 3.8% income tax beginning January 1st, 2025," Richardson said.

Richardson said tax processing and refund issuance for timely filed 2025 returns should be complete in the coming month, which will provide further clarity on FY2026 revenue. The Iowa Legislative Services Agency plans to analyze refund trends and release the next monthly video memo in early June.

(Reporting based solely on the April 2026 Iowa Legislative Services Agency video memo presented by Eric Richardson; no formal votes, motions or external testimony were recorded in the memo.)