Updated October 5, 2026. Quick answer: Yes. Iowa taxes interest and dividends at a single rate: “Iowa now has a flat tax rate of 3.8%.” Interest on federal securities is subtracted, and interest on other states’ bonds is added back.
How Iowa treats dividends and interest
| Item | What the documents say |
|---|---|
| Treatment | Taxed at the flat rate |
| Rate | “Iowa now has a flat tax rate of 3.8%.” |
| Other states’ bonds | Schedule 1 adds “Enter interest from state and municipal securities, to the extent not already” in federal taxable interest, and “interest from certain Iowa state and municipal securities is exempt” |
| U.S. obligations | Column B subtracts “Enter interest received from federal securities” such as U.S. Savings Bonds and Treasury notes |
| Agency securities | “The following are not considered federal securities and are taxable”: the instructions list Fannie Mae, Ginnie Mae, Freddie Mac and certain other agencies |
| Mutual funds | “Include all dividends from mutual funds, investment trusts, or regulated investment” companies; the federal-securities share is subtracted only if “You cannot take this deduction unless you are provided a statement” |
A $20,000 example
Taxable dividends and interest of $20,000 add $20,000 x 3.8% = $760 of Iowa tax, before the subtractions above.
What changes in 2026
The archived instructions print no 2026 rate change; the What’s New page lists only a change to the 2026 estimated tax threshold.
Federal rules
The state’s treatment sits on top of the federal one. Qualified dividends and ordinary dividends are sorted out on the Form 1099-DIV, as the site explains in Box 1a and 1b: ordinary versus qualified dividends, and interest is reported as covered in 1099-INT Box 1. The IRS explains the federal side in Topic no. 403, Interest Received and Topic no. 404, Dividends.
Related: whether Iowa taxes capital gains, whether Iowa taxes pensions, how Iowa taxes retirement income, dividends and interest tax by state, and how tax-exempt interest is reported.
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Answer againSources
- 2025 IA 1040 Schedule 1 Expanded Instructions: https://revenue.iowa.gov/taxes/tax-guidance/individual-income-tax/ia-1040-instructions/ia-1040-schedule-1
- IA 1040 Line 5: Iowa Tax (2025 instructions): https://revenue.iowa.gov/taxes/tax-guidance/individual-income-tax/ia-1040-instructions/line-5-iowa-tax
- IA 1040 Intro 1: What’s New for 2025: https://revenue.iowa.gov/taxes/tax-guidance/individual-income-tax/ia-1040-instructions/intro-1-whats-new
Sources: the primary documents linked above, read on October 5, 2026. General information, not tax advice. Your own facts decide the outcome, and a preparer, the plan administrator or the agency itself is the right place to confirm anything consequential.