Iowa income tax revenue dips 18.6% in July and August, largely from tax cuts

DES MOINES — State revenue in Iowa decreased by $42.4 million, or 6.7 percent, in August compared to the same time period last year, according to a report issued Tuesday by the Iowa Legislative Services Agency.

The dip is primarily due to a decrease in income tax revenue collected by the state stemming from tax cuts enacted by the Republican-led legislature in recent years.

The money collected by the state from income tax fell by 18.6 percent in July and August, compared to the same time frame in the last fiscal year, according to the report. Personal income tax receipts in August totaled $350 million, a 13.1 percent decrease compared to August 2024.

The tax cuts, enacted over multiple bills starting in 2019, have gradually reduced the number of state income tax brackets and lowered rates. In 2023 there were four brackets ranging from 4.4 percent to 6 percent, and in 2024 there were three brackets ranging from 4.4 percent to 5.7 percent.

In January, most Iowans started paying a 3.8 percent state income tax rate.

At the end of the 2025 legislative session, Republican leaders agreed to spend more than $9.4 billion on the next state budget, including dipping into some reserve funds.

The state's new fiscal year started July 1.

The budget exceeds the $8.5 billion the state is projected to collect in revenue, according to the Iowa Revenue Estimating Conference’s projections at its regular quarterly meeting in March. That number was down by $218 million from its projections in December.

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At the end of budget negotiations in May, Republican legislative leaders said they would use money from the state’s $2 billion general fund surplus and $4 billion in the Taxpayer Relief Fund, which was created for covering general fund budget deficits resulting from the tax cuts, to cover the difference. Leaders said they expect state revenue to grow again to exceed state spending in coming years.

Revenue from corporate income taxes and sales taxes both saw increases in August, but not enough to make up for the decrease in personal income taxes, according to the report.

Corporate income tax receipts totaled $14.3 million in August, compared to $7.4 million in August of 2024.

Sales tax receipts in August increased 2.1 percent compared to August of 2024.