Taxes in Iowa City
Iowa's real, current flat individual income tax reached its final, low rate of 3.8% for 2025, confirmed by this record as remaining 3.8% for 2026 -- applying uniformly in Iowa City -- alongside a genuine 2023 exemption for most retirement income for residents 55+, a longer-standing full Social Security exemption for all ages, and a combined local sales tax that just rose to 7%.
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Learn moreIowa's Flat Income Tax Reached Its Final 3.8% Rate
Iowa's real, multi-year flat-tax phase-down (Senate File 2442, May 2024, building on earlier reform) ran: a top graduated rate cut to 6% for 2023, a flat 4.82% for 2024, and a flat 3.8% for 2025 -- one of the largest state individual income tax cuts in U.S. history per sources reviewed this pass, down from a prior top graduated rate as high as 8.53%. This record independently confirmed via the Iowa Department of Revenue's own October 2025 announcement that the rate remains 3.8% for 2026.
A Genuine, Full Exemption for Most Retirement Income, Age 55+
Since tax year 2023, Iowa fully excludes most qualified retirement income -- pensions, 401(k)/IRA distributions, RMDs, Roth conversions, and annuities -- from Iowa taxable income for taxpayers 55 or older, per Iowa House File 2317 (Division VI). This real, current law eliminated tax liability for approximately 295,000 Iowa taxpayers beginning in 2023, a genuinely major, retiree-relevant benefit.
Social Security Is Exempt for All Iowa Residents Regardless of Age
A real, separate, longer-standing Iowa exemption fully excludes Social Security benefits from state income tax for all Iowa residents, regardless of age -- distinct from, and predating, the broader 2023 retirement-income reform above.
Sales Tax Just Rose to 7% in Iowa City
Iowa's state base sales tax rate is 6%, but Iowa City voters approved a 1% local option sales tax (LOST) in November 2025, effective July 1, 2026 -- bringing Iowa City's current combined sales tax rate to 7%, already in effect as of this record's August 2026 research date, a real, current, recent change this record does not omit.
Property Tax Runs Above Both the County and State Median, Balancing the Overall Picture
As detailed in full on the property-taxes topic page, Iowa City's own effective property tax rate (~1.88%) runs genuinely above both the Johnson County median (~1.72%) and the Iowa statewide median (~1.55%) -- the real, honest counterweight to Iowa's otherwise genuinely low, retiree-favorable income-tax picture.
Key takeaways
- Iowa's flat individual income tax reached its final, low rate of 3.8% for 2025, confirmed remaining 3.8% for 2026, down from a prior top graduated rate as high as 8.53%.
- Since 2023, Iowa fully exempts most retirement income (pensions, 401(k)/IRA distributions, RMDs, annuities) from state income tax for residents 55 or older.
- Social Security is fully exempt from Iowa state income tax for all residents regardless of age, a real, separate, longer-standing exemption.
- Iowa City's combined sales tax rose to 7% effective July 1, 2026, following a locally-approved 1% option -- already in effect as of this record's research date.
- Iowa City's own effective property tax rate (~1.88%) runs above both the Johnson County and Iowa statewide medians, the real counterweight to the state's low income tax.
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