House Republican Newsletter

Governor’s Tax Reform – Tax Year 2018 Changes

     Last week the Governor’s tax reform bill (House Study Bill 671) was assigned to a House Ways and Means subcommittee. The bill is lengthy and contains changes and reforms spanning multiple tax and fiscal years. It is probably easiest to take the reforms tax year by tax year—focusing this week on tax year 2018 which you will be filing a return for in April 2019.

     The bill provisions that could take effect in 2018 are mostly what people would think of as traditional coupling provisions. A few provisions are directly related to the tax reform passed by Congress last December.

     Changes include an expanded definition of qualified education expenses under the 529 education savings plans. This is one of those provisions that are necessary because of federal tax reform. This change will let Iowans withdraw money (with no penalty) from a 529 plan to pay for K-12 tuition expenses. The bill does require that the K-12 school be within the state of Iowa.

     House Study Bill 671 coupled with federal code on a few other provisions including:

     • Definitional changes regarding retirement savings and business accounting rules

     • The above-the-line deduction for teachers’ education expenses

     • The exclusion of IRA distributions for 70 ½ year and older charitable contributions

     • The option to itemize sales and use taxes in lieu of income taxes.

     Probably the biggest coupling provision in tax year 2018 is the Section 179 coupling. The Governor’s bill would raise the Section 179 limit to $100,000/$400,000, a number up from current law’s $25,000/$200,000. The Federal tax reform bill set the limit at $1 million. House Study Bill 671 also gives shareholders the ability to depreciate expensing above the cap over the following five years to avoid certain situations where individuals with multiple pass-through entities were losing out on the provision entirely for some entities.

     The cost of the tax year 2018 changes outlined above is estimated at $53 million. Most of that would be realized in fiscal year 2019. Next week, we will cover the provisions in the Governor’s bill that relate to tax year 2019. Those changes include rate changes and sales tax reforms.

     On Wednesday morning, Feb. 21, Senate Republicans released details of their own tax reform/tax reduction package. No one outside of the authors of that bill was privy to details prior to its release. As such, it will be a few days before the House will be able to make any informed comments on the idea.

Noteworthy Bills from the Commerce Committee

     The first legislative funnel came and went last week. Unless a bill has been assigned to the Appropriations, Ways and Means, or Government Oversight committee, it must pass out of a committee to receive further consideration this legislative session. The following are some of the significant bills to survive the first legislative funnel in the Commerce Committee.

     • HF2364/HSB 637 – Health Benefit Plans. This bill clarifies that a health benefit plan, sponsored by a nonprofit agricultural organization is not insurance or subject to insurance regulations. Health benefit plans must be administered by a domestic entity registered with the insurance commissioner. This third-party administrator must have a history of providing healthcare services. The nonprofit agricultural organization is required to file with the insurance commissioner certifying they meet all requirements. HSB 637 passed out of committee by a vote of 16-7 and is waiting to be considered by the entire House of Representatives. (Status: House Calendar)

     • HF 2305/HSB 572 – Telehealth. Many parts of Iowa have limited access to a doctor. Few general practitioners and even fewer specialists in the state effectively result in long travel times and expensive transportation costs for many Iowans. Faced with these barriers, often times, Iowans may end up going without the care they need. One possible solution is telehealth. Telehealth allows long distance patient/clinician contact and care. It is a practice that would allow an Iowan to speak with, visually see and be treated by a doctor by utilizing audiovisual technology. HF 2305 would require telehealth care to be covered by healthcare insurance, just like health insurance would cover a face-to-face visit between a patient and their healthcare professional. It passed out of committee unanimously. (Status: House Calendar)

     • HSB 602 – Future Ready Iowa . Iowa has a skilled workforce shortage; this bill takes a number of steps to increase and improve the skills of Iowa’s workforce beyond a high school degree. This includes creating a program for small and medium sized apprenticeship sponsors. It also creates a volunteer mentor program to support future ready programs, a summer youth internship program, an employer innovation program, an education last dollar scholarship program, an education grant program, and a program for high-school students to attend college level classes during the summer. These steps will help businesses grow and help individual Iowans adapt to the changing economy and find new and better careers. HSB 602 passed out of committee by a vote of 16-7 and is waiting to be considered by the entire House of Representatives. (Status: Passed House Commerce Committee)