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Neighbors Growing Together | Aug 20, 2018

Department of revenue’s information on overdue taxes and tax brackets

Jan 19, 2018
The table shows how much state income tax a person owes depending on their income. For instance, someone who made exactly $1,598 would owe $5.75 in state income taxes.

DES MOINES – The Iowa Department of Revenue announced in October that the annual interest rate for overdue taxes and refunds in 2018 is 6 percent – which is the first change since 2010 – and also released tax brackets and standard deductions for 2018.

What this means for taxpayers with overdue payments is that beginning Jan. 1, 2018, a 6 percent annual interest rate (0.5 percent monthly) has been added to late payments.

However, taxpayers with overdue refunds from the State will receive the same interest rate. The annual rate has not changed since 2010, when it was set at 5 percent. The 2018 rate is effective Jan. 1, 2018 through Dec. 31, 2018, for taxes which are overdue and for late refunds payable during that time.

IDR calculates and publishes the statutory annual and monthly interest rates each year in October. Also at this time, IDR determines and sets forth the standard deduction amounts and tax brackets for the 2018 tax year. Those are listed below.

Iowa Code Section 421.7 specifies procedures for calculating the department’s annual and monthly interest rates. The annual rate 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 3.91 percent over the past twelve months. Rounding this average to the nearest whole percent and adding two percentage points results in the annual Department rate of 6.0 percent. The monthly rate is the annual rate divided by 12, rounded to the nearest one-tenth of a percentage point.

IDR has also determined the tax brackets and standard deduction amounts for the 2018 tax year, for income taxes due and payable in calendar year 2019. These amounts are determined each year by applying inflation factors to, or “indexing,” the previous year’s amounts.

The indexation of brackets and standard deduction amounts is meant to prevent taxpayers from paying higher income taxes solely as a result of inflationary impacts on incomes. Indexation of the standard income tax deductions is covered in Iowa Code sections 422.9 and 422.21.

The tax year 2018 standard deduction for single taxpayers or married taxpayers filing separately will be $2,030. The tax year 2018 standard deduction for married filing jointly taxpayers will be $5,000.

Code section 422.5 details indexation of Iowa income tax brackets. The tax year 2018 income tax brackets are shown above.

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