State flat tax begins in 2025

DES MOINES — Since the enactment of Iowa Senate File 2442 in May 2024, Iowa law provides for a flat tax rate of 3.8% for all levels of taxable individual income beginning with tax year 2025.

There will be no income tax brackets in 2025.

Starting Jan. 1, 2025, the interest rate for taxpayers with overdue payments will be: 10.0% annually, 0.8% monthly, 0.027397 % daily

The annual rate, as per Iowa Code Section 421.7, is based on the average monthly prime rate during the preceding twelve month period (October through September). Iowa law requires that this average be rounded to the nearest whole percent and two percentage points to be added to it.

The prime rate averaged 8.48% over the past twelve months. Rounded to the nearest whole percent, this average is 8%.

Adding two percentage points results in the annual Department rate of 10%. The monthly rate is the annual rate divided by 12, rounded to the nearest one-tenth of a percentage point.

The daily rate for 2025 is the annual rate divided by 365. The average monthly bank prime rate is published by the United States Federal Reserve.