Military Retirement Benefits Exclusion From Iowa Income Tax

On May 26, 2014, Governor Branstad signed Senate File 303 which provides for the exclusion of military retirement benefits from Iowa individual income tax.

Iowa Code sections 422.7(31A) and (31B) provide an exclusion from Iowa Individual Income Tax for military retirement benefits retroactive to tax years beginning on or after January 1, 2014, regardless of a taxpayer’s age. The retirement pay is only deductible to the extent it is included in the taxpayer’s federal adjusted gross income. The exclusion also applies to military survivor benefits received under 10 U.S.C. 1447. It is available for both residents and nonresidents of Iowa. 

The exemption is in addition to the general $6,000/$12,000 pension exclusion available for Iowa individual income tax for taxpayers 55 years of age or older.  

For example, if a married individual age 65 receives $20,000 in military retirement pay and $25,000 in pension income from John Deere, that individual will be able to exclude $32,000 ($20,000 plus $12,000) of pension income on their Iowa income tax return.