The plan means Iowans who qualified for temporary federal unemployment would not have to pay state income taxes on those benefits for tax year 2020. In addition, state income taxes would not be charged on the federal Paycheck Protection Program grants and loans to Iowa businesses. The total tax savings for Iowa businesses and individuals would amount to an estimated $128 million.
“A Covid relief package that is substantial, that takes care of both businesses and individuals in as equitable and as meaningful a way as we could possibly do,” said Representative Brian Lohse, a Republican from Bondurant.
Lohse said it was the “right mechanism” to get relief to Iowans who took a financial hit during the pandemic.
“Benefiting those that have been certainly impacted by the pandemic has been, I think, across the board for all 100 of us one of the foremost thoughts that we’ve had,” Lohse said, “finding the proper way to do it, finding a way that continues to be fiscally responsible.”
Representative Dave Jacoby, a Democrat from Coralville, cheered the plan.
“I’m smiling under my mask because finally a major bill coming through our chamber with bipartisan support,” he said during House debate.
Iowans will still have to pay state income taxes on standard unemployment benefits, but Jacoby says the bill should help as many as 200,000 Iowans who got expanded benefits provided by the federal government.
“This is a fantastic bill. In fact, from my point of view, this should have been the first bill we did in January,” Jacoby said. “…It’s much more important than some of the other things that we’ve tackled in the first six or seven weeks.”
Senators have already agreed to exempt PPP loans and grants from state taxes. The bill now goes back to the Senate for a vote on erasing state income taxes on the expanded federal benefits to Iowans who were unemployed during the pandemic.