A rush to enact new property tax breaks for Iowa seniors has led to confusion and concerns of fraud among county and city assessors, who say they are struggling to verify applicants’ age.
Iowa seniors can begin applying for a new property tax break created by legislation signed into law three weeks ago by Gov. Kim Reynolds.
The new property tax law, House File 718, was approved with near-unanimous support in the Iowa Legislature during the last days of the legislative session.
The law took effect immediately and provides a $3,250 exemption on the taxable value of a home owned and lived in by Iowans age 65 and older. The exemption applies for the assessment that began Jan. 1 that would have associated taxes due in fall 2024 and spring 2025. The homestead property tax exemption then increases to $6,500 for the 2024 assessment year.
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In order to claim the new tax exemption, seniors must file applications with their local assessor offices on or before July 1.
The Iowa Department of Revenue last week amended an existing homestead tax credit exemption form to allow seniors to also apply for the new exemption. To claim the new exemption, applicants must provide their date of birth and certify information on the form is correct.
However, ambiguity in guidance provided by the Revenue Department — as well as the quick timeline for implementation — has caused confusion and consternation among assessors over what documents they can request and examine from Iowans to verify they’re 65 or older and qualify for the tax break, Linn County Assessor Jerry Witt said.
Witt said his office had been inundated with calls, email, letters and in-person questions from seniors about the new property tax exemption.
“The media did a good job of getting the word out, and we’re doing what we can to try to simplify” the process, Witt said. “It doesn’t seem to be going the best, so far.”
Witt said his office was given permission by the Department of Revenue to automatically approve Iowa seniors currently receiving the homestead tax credit to also receive the new exemption — so long as they can verify that they’re 65 or older.
However, Department of Revenue Deputy Administrator Jon Wolfe, in a memo to assessors and auditors responding to questions, wrote that they are “not allowed to require any additional documentation not on the form” to verify age eligibility.
“Additionally, several of you have inquired about requiring additional documentation to verify age eligibility (such as a driver’s license),” Wolfe wrote. “You are not allowed to require any additional documentation that is not requested on the form. The Homestead form does not require any additional documentation, nor does chapter 425, subchapter I require additional documentation.”
Witt and others interpreted that to mean they were prohibited from verifying an applicant’s age, sparking concerns that many younger Iowans who do not quality will take advantage.
A spokesperson for the Department of Revenue clarified to The Gazette on Wednesday that assessors can ask for a photo ID — but cannot reject an application if one was not provided. Additionally, the Iowa Secretary of State recently issued an opinion stating that assessors may use voter registration lists to determine the age of property owners qualifying for the new exemption.
“The assessor can use other available data to verify age, and there is nothing preventing the assessor from examining a document such as a driver's license,” Department of Revenue spokesman John Fuller said. “They just cannot recommend disallowance or refuse to accept a claim because the claimant doesn't provide additional documentation not required by law.”
Fuller said documentation requirements to establish age eligibility for the new homestead exemption are consistent with other property tax credit programs that have been in operation for years. He gave the example of the Elderly Credit Homestead program, which has age-based eligibility requirements and requires an attestation to establish age eligibility.
Witt and other Iowa assessors, however, say they’re concerned about fraud, particularly with applications submitted electronically in an email. Iowans who file a fraudulent claim are subject to a 25% penalty plus interest.
Given the ease of verification of ownership through property tax records “and the availability of claimant age in other data sets, it is unlikely that there will be systemic fraud,” Fuller said.
Cross referencing property records with voter records, however, is not as straightforward as it may seem, Witt said.
“You have two different sets of data used for two completely different purposes, and it’s difficult to match up,” he said, adding not all Iowans are registered to vote.
Wolfe, the Revenue Department deputy administrator, in his memo wrote that “because of the short timeline for implementation, we are concerned about possible unintended consequences of making more substantive changes without careful consideration.”
Witt said assessors are frustrated by state lawmakers asking local officials to immediately implement the legislation with little time to adjust and educate the public.
“Hopefully, legislators will have an open ear“ next year to passing changes to make the law more workable, he said. But while there have been hiccups, overall, Witt said the process “has been positive.”
“People are patient and extremely nice and thankful … they do get this relief,” he said.
Have you filed taxes with TurboTax in the last couple of years? Well, if so, you might be entitled to some money. Veuer’s Tony Spitz has the details.
5 ways to invest your tax refund and boost your financial well-being
5 ways to invest your tax refund and boost your financial well-being
Millions of Americans will receive a tax refund when they file their taxes this year, giving them a nice cash boost that can help improve their financial lives. The average tax refund is $2,933 as of March 17, according to the IRS, so the money taxpayers receive can be substantial.
Even though the idea of spending it may be tempting, there are many great ways to use your tax refund including boosting your savings, investing it in a side hustle or reducing debt. Bankrate compiled 5 smart ways to put your tax refund to work. And if you're still unsure what to do with it, consider consulting with a financial advisor to help decide the best way to put your money to work.
Key tax refund statistics
- 75% of U.S. adults who expect a tax refund say it's important to their overall financial situation, according to a Bankrate survey.
- One-third of Americans are worried their refund will be smaller than usual, the Bankrate survey found.
- Just 5% of Americans said they plan to invest their tax refund, according to the Bankrate survey.
- The average tax refund was $2,933 as of March 17, 2023, according to the IRS, down 11.3% from $3,305 at the same time in 2022.
- The IRS had processed 53.9 million refunds as of March 17 and had refunded about $158.1 billion to taxpayers.
- About 97% of tax refunds were issued through direct deposit, as of March 17, according to the IRS.
1. Boost your emergency fund
There's some debate which should be done first — paying off high-interest debt or having an emergency fund. At least, starting an emergency fund should be a top priority — and then the rest can be applied toward debt or other priorities.
Achieving financial security requires planning for unexpected events. A recent Bankrate survey found less than 40% of Americans could pay an unexpected $1,000 expense from a savings account. So, setting up (or boosting) an emergency savings account is a key part of a smart financial plan.
"That way you cover any 'what ifs' or anything that could potentially derail your budget and get you further into debt," says Cynthia Flannigan, certified financial planner at MainStreet Financial.
That's why if you're going to put your money into savings, make sure you're putting it in an account that's going to earn the most interest. Comparatively, if you were getting the national average savings yield of 0.23% APY, you'd earn less than $7 after a year.
In five years that starts adding up — or not. Assuming the variable APYs stayed the same, you'd earn about $600 more in the higher-yielding account over that period.
"We recommend an online, high-yield savings account — so that it's far enough away from your regular spending that you won't tap into it, but it's there if you need it," Flannigan says.
Savings accounts aren't meant to be transaction accounts. If you need the ability to write a limited number of checks from savings, look for a money market account that offers check-writing privileges, in addition to a competitive APY.
2. Contribute to an IRA
If you've already filed your return, it's too late to contribute to an individual retirement account for the 2022 tax year, unless you want to file an amended return. But you can take your refund and put it into a traditional IRA for the current tax year, plus what's in the account can compound tax-free until you withdraw it, and the contribution may reduce your 2023 taxable income.
If you're eligible to contribute to an IRA, be aware of contribution limits: $6,000 for 2022 for most filers; $7,000 for those 50 and older. In 2023, the limits increase to $6,500 or $7,500 if you're age 50 or older. An IRA contribution can help you boost your retirement balance — and may be a good option, especially if you have sufficient emergency savings, don't have credit card debt or similar at a high APR and you've maximized your 401(k) contributions.
3. Pay off debt
The average APR on variable-rate credit cards is 20.05%, according to Bankrate data. Using your tax refund to pay off high-interest debt could be the best use of the money. The average balance on credit cards was $5,910, according to Experian data from the third quarter of 2022. If you paid only $100 a month toward the $5,910 balance it would take 265 months to pay off and cost an additional $20,517 in interest.
Paying down debt is the top priority for Americans who expect a tax refund in 2023, according to a recent Bankrate survey. About 28% intend to use their tax refund to pay down debt, up from 23% last year. Advisors suggest focusing on paying off high-interest debt first because of the weight it can have on your finances.
"That's the most expensive and worst kind of debt, typically," says Liz Landau, a certified financial planner at Landau Advisory in White Plains, New York. "So that's usually the first thing I'll suggest with a refund."
MainStreet Financial's Flannigan says there are two ways to approach paying off debt:
- Avalanche method: Focus on paying off the debt with the highest interest rate. Once that is paid off, move on to the balance with the next-highest rate. This method saves the most money.
- Snowball method: Pay off the smallest balance first for the sense of accomplishment, and then work your way up until you finish.
The snowball and avalanche methods can both be effective ways to pay down debt. The avalanche method is likely to save the most money because you're paying down high-interest debt first, whereas the snowball method is more about psychological gains that come from paying off small balances first.
Other tips for paying off debt include paying more than the monthly minimum, paying more often than once a month and sticking to a regular budget to help manage expenses.
4. Contribute to a savings account to save for key goals
If you already have an emergency fund and you've either applied money toward debt or don't have any debt, then consider putting at least some of your tax refund into a high-yield savings account. It could be money that's earmarked for a down payment on a home, a wedding or saving for a vacation.
About 26% of Americans said they plan to use their tax refund to boost their savings, according to Bankrate's survey, the second-highest use behind paying down debt. Contributing $3,000 to a high-yield savings account yielding 4% would leave you with $3,650 after 5 years.
You don't have to earmark a savings account now. Your life goals will probably change as you age. So just having that money in your savings account will allow you to easily adapt as priorities shift. You can either lump all your savings into a single account or place funds in separate high-yield savings accounts to make sure that money meant for one purpose doesn't get casually used for something else. Be sure to hold your emergency fund in a high-yield savings account, so you're getting the best interest rate that's available while still having regular access to the money.
To get the highest APY, banks used to offer tiered balances to encourage customers to put all their money in a single institution. But now online banks, generally, offer the best APYs and require low or no minimum balance in return. There are several online banks with competitive yields that have no or low minimum balance requirements.
5. Investing and building wealth
Investing is a key part of building wealth and saving for long-term goals such as retirement, so using your tax refund to invest can be a great choice. Securities such as stocks and bonds can be used to build a diversified portfolio that can grow significantly over time.
Mutual funds and ETFs can be used to build diversified portfolios at a low cost, so you won't have to worry about choosing which individual stocks or bonds to buy. Most online brokers allow you to get started with just a few dollars, so don't worry if you don't have much to invest initially.
You might also consider using a robo-advisor, which helps build an investment portfolio based on your goals and risk tolerance, but charges a much smaller fee than traditional financial advisors. The top robo-advisors have investment apps that make it easy to track your portfolio from your phone.
The key distinction between using your tax refund for investing in assets like stocks versus using it to save is the amount of risk involved. Stocks are volatile in the short term, so only invest the money if you're confident you won't need it for the next five years or so. If you may need the money, a high-yield savings account is likely a better choice.
Additional tax refund resources
"Ultimately, you have to ask yourself what'll make you feel better in the long run," Flannigan says. If in the future you'd like a smaller refund, she says you could increase your withholding allowances.
"So, less income tax will be withheld, your refund will be smaller, but your monthly paycheck will be larger and you'll be able to spend that money on your goals instead," Flannigan says. Or you can think of your tax refund like it's forced savings.
This story originally appeared on Bankrate and has been independently reviewed to meet journalistic standards.
