Iowa businesses will benefit from a $1.2 billion reduction in unemployment insurance taxes over the next five years, following the signing of Senate File 607 by Republican Governor Kim Reynolds.
The signing took place at US Erectors, a steel erection company in Pleasant Hill, where Reynolds was joined by company employees, state lawmakers, and officials.
Governor Reynolds, who made the legislation a priority in her January Condition of the State address, said the tax cut will enable businesses to save money and reinvest in their workforce.
“This bill streamlines Iowa’s unemployment insurance tax system right, bringing overdue reform to how we support our workforce and how we support the businesses that create jobs across our state, while most importantly, keeping the fund healthy and sustainable for the long term,” Reynolds said.
Effective July 1, the new law will reduce the taxable wage base by half and cap unemployment tax rates at a maximum of 5.4 percent on wages up to approximately $19,000 per employee. This is a decrease from the current 7 percent rate on wages up to about $38,000.
Additionally, the legislation simplifies the tax system by reducing the number of tax tables, cutting overall tax categories, and encouraging businesses to reinvest their savings in employees.
Passed largely along party lines in the Republican-led legislature, the bill is projected to reduce the Unemployment Trust Fund outlays by about $63 million annually, leaving an estimated balance of $1.77 billion by 2030, according to the nonpartisan Legislative Services Agency.
Currently, Iowa’s Unemployment Trust Fund holds a record high of $1.8 billion—ranking ninth nationally and exceeding the necessary balance to support unemployed Iowans. Much of this cushion stems from over $700 million in one-time federal pandemic relief funds used by Reynolds to stabilize the fund during pandemic-related layoffs.
However, Democrats and labor union representatives criticized the bill, expressing concerns that the tax cuts could undermine the fund’s long-term stability and jeopardize worker protections during economic downturns.
“While Iowa families struggle and Iowa’s economy ranks dead last, Governor Reynolds and Republican lawmakers are handing out a $1 billion tax break to big corporations, paid for by raiding funds meant for laid-off workers,” said Rep. Dan Gosa, a Democrat from Davenport. “In 2022, Iowa Republicans slashed unemployment from 26 weeks to 16. Now they’re handing out tax breaks to corporations that lay off workers and ship jobs overseas. Iowa workers shouldn’t be footing the bill for corporate tax breaks.”
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