Iowa's Top Marginal Income Tax on Sole Proprietorships Ranks Near Middle of the Nation

Date: February 16, 2017

Iowa’s top tax rate for sole proprietorships ranks 26th in the nation, according to a new Tax Foundation study. At 47.1 percent, the state comes in about the same as the median national rate of 47.2 percent.

Iowa’s neighbors to the north face high tax rates of 49.7 percent in Minnesota and 48.4 percent in Wisconsin, making them second and eighth in the nation. But Kansas and Illinois have lower rates than the Hawkeye State, at 42.6 and 46.0 percent.

California has the nation’s highest tax sole proprietorship tax rate of 51.8 percent.

Sole proprietorships are considered pass-through businesses, which means they are not subject to federal corporate income tax. Instead, the income is taxed as the business owner’s personal income.

Income taxation on pass-through businesses is a key issue for 2017, as nine out of ten companies in the U.S. are considered pass-through businesses. Pass-through businesses also earn the majority of business income in the U.S. and employ more than half of the private sector work force, according to the study.

“As the tax reform debate moves forward in 2017, it will be important for policymakers to consider the effects of tax reform proposals on pass-through businesses,” advises the Tax Foundation.

Related Content: Small Business News | Economy | Iowa

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