Iowa businesses will get an estimated $1.2 billion tax cut over the next five years under a new law signed Thursday by Gov. Kim Reynolds.
Reynolds said cutting unemployment insurance taxes — which fund unemployment benefits that are paid to people who are laid off from their jobs — was one of her top priorities for this legislative session.
She said the state’s unemployment trust fund is the 9th largest in the country, even though Iowa is 32nd in population, and the state has needlessly over-collected unemployment taxes from businesses.
“I truly do believe that it will make a difference in making us more competitive as a state, and for employers across the state to give back to their community, their business or their employees,” Reynolds said.
The new law — which takes effect July 1 — lowers the top unemployment tax rate from 9% to 5.4%, decreases the number of tax tables, and cuts the amount of wages that are taxed by about half. That is expected to reduce payments into the unemployment trust fund by nearly $1.2 billion over the next five years, according to the nonpartisan Legislative Services Agency (LSA).
Reynolds signed the bill into law at U.S. Erectors in Pleasant Hill. She said the company is expecting to save $86,000 next year from the unemployment tax cuts.
U.S. Erectors CEO Brad Churchill said the law provides meaningful relief for employers while ensuring benefits are there for people who are laid off.
“For companies like ours, those savings can be reinvested directly into our workforce through hiring, wage increases, purchasing of new equipment and expanding our facilities for growth,” he said.
The new law states that employers should use any savings from the tax cuts to pay for employee salaries or benefits, or to use as an alternative to unemployment benefits during periods of seasonal unemployment. But it doesn’t require businesses to use the savings for those purposes.
Democrats in the Iowa Legislature opposed the bill.
“While Iowa families struggle and Iowa’s economy ranks dead last, Gov. 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,” Rep. Dan Gosa, D-Davenport, said in a statement Thursday.
“In 2022, Iowa Republicans slashed unemployment from 26 weeks to 16,” he said. “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.”
Reynolds said under the new law, the unemployment trust fund will still be sustainable for the long term.
As of March 1, 2025, Iowa’s Unemployment Compensation Trust Fund balance stood at $1.89 billion. In 2024, according to the LSA, the state paid out $316 million in unemployment benefits. LSA estimated that with the unemployment tax cuts, the trust fund balance will be $1.78 billion in 2030 if unemployment trends remain constant.
