Line 13: Credit for Nonresident or Part-Year Resident

Topics:

Expanded Instructions
  • Line: 13
  • Step: 5
  • Step Subject: Tax, Non-refundable Credits & Checkoff Contributions
  • Instruction Year: 2024

Nonresidents or Part-Year Residents:

A nonresident or part-year resident of Iowa must complete the IA 1040, lines 1 through 12 prior to completing the IA 126. The nonresident or part-year resident then completes a Schedule IA 126. On the IA 126, only Iowa income is reported and a percentage of Iowa income to total income is determined. The taxpayer receives a credit against the initial tax liability based on the percentage of income from outside Iowa. Therefore, the result of this credit is that only Iowa-source income is taxed.

Note: The Iowa income percentage is rounded to the nearest ten-thousandth of a percent in accordance with Iowa Administrative Code rule 701ā€”304.5. The final credit from this form is used to reduce the total tax on your IA 1040.

Although non-Iowa income is used to calculate the initial tax liability at the appropriate tax rate, the non-Iowa income itself is not subject to tax. By using this method, Iowa taxes the Iowa-source income of nonresidents and part-year residents at the same rate it taxes Iowa residents. Iowa, like many states and the federal government, uses a graduated tax rate system based on level of income.

A nonresident of Iowa with all-source income of $250,000 and $10,000 of Iowa income, will use the same tax rate as an Iowa resident with $250,000 of income to calculate their initial tax liability, rather than using the same tax rate as an Iowa resident with $10,000 of total income. Enter the amount of your nonresident / part-year resident tax credit from Schedule IA 126, line 33. A copy of Schedule IA 126 and a copy of your federal return must be included. You may owe less tax by using filing status 3 or 4.

Enter the amount of your nonresident or part-year resident tax credit from Schedule IA 126, line 32. A copy of Schedule IA 126 and a copy of your federal return must be included.

General instructions for completing the IA 126:

Part-Year Iowa Residents:

Iowa-source net income includes all income received while living in Iowa plus any Iowa-source income received while a nonresident.

Part-Year Resident Example:  Michael lived and worked in Iowa the first six months of the tax year. In addition to Michaelā€™s wages, Michael received interest income from an Iowa bank. Michael then permanently moved to Missouri, where Michael was employed for the rest of the year. Michael continued to receive interest income from the Iowa bank.

Michaelā€™s IA 1040, line 1, will report all of the income from both states as all-source income. On the IA 126, Michael will report the wages and interest income earned while an Iowa resident as Iowa-source income. The interest income earned the last half of the year is not considered Iowa-source income since Michael was no longer an Iowa resident

Nonresidents:

Iowa-source net income will include all income from Iowa sources. Complete IA 126, lines 1 through 13 using only income from Iowa sources.

Nonresident Example 1:  Nick is a resident of Nebraska and works in Iowa. Nickā€™s income includes wages earned in Iowa and interest income from a Nebraska bank. Nick will report the wages and interest on the IA 1040 as all-source income. Nick will list only the Iowa wages  on the IA 126 as Iowa-source income.

Iowa has a reciprocal agreement with Illinois, which means that wages and salaries are taxed by the individualā€™s state of residence. All income received from other Iowa sources (gambling, unemployment, etc.) is taxable to Iowa regardless of the personā€™s state of residence.

Nonresident Example 2:  Tiana is a resident of Illinois. Tiana earned $25,000 in wages from Iowa and won $5,000 at an Iowa casino. Tiana will report income from all sources on the IA 1040. Only the gambling winnings will be reported on the IA 126 as Tianaā€™s Iowa-source income.

Full-Year Residents (married jointly filers check the corresponding box if one spouse is a full-year Iowa resident)
For married taxpayers, if one spouse is a full year Iowa resident, the full year Iowa resident must include all of that spouseā€™s income from the IA 1040.

Married Separate Filers:

Divide your Iowa income between spouses using the instructions on each line of the IA 126 below.

Reporting Modifications to Iowa Source Income

If any income claimed on lines 1-12 are modified by any amounts claimed on IA 1040, Schedule 1, lines 1-11, net out those modifications directly on each applicable line. (Example: if you have Iowa-source wages of $50,000 but all wages were active duty military pay, and you claimed the active duty military pay modification on IA 1040, Schedule 1, line 6; enter $0 on IA 126, line 1). An exception would be K-1 Modifications listed on IA Schedule 1, line 3. See line 12 instructions for more information.

1. Wages, Salaries, Tips, Etc.

Part-year residents: Include all W-2 income earned or received while an Iowa resident, even if it was earned in another state, and any income for services performed in Iowa while a nonresident of the state. If it was earned in another state, you may also need to fill out the IA 130 if you pay tax to the other state. You will need to check with that state for their filing requirements.

Nonresidents: Report only Iowa-source income. If the portion of employee compensation earned in Iowa by a nonresident is not reported separately, allocate the compensation based upon the number of days worked in Iowa to total work days. Nonresidents who earned compensation in Iowa and one or more other states for a railway company, an airline company, a merchant marine company, or an interstate motor carrier are only subject to income tax on that income in their state of residence and should not include these wages on line 1.

2. Taxable Interest Income

Part-year residents: Report all taxable interest which accrued while an Iowa resident and any interest received while a nonresident which was derived from a trade, business, or profession carried on within Iowa.

Nonresidents: Report only the interest derived from a trade, business, or profession carried on within Iowa.

3. Ordinary Dividend Income

Part-year residents: Report all dividends received while an Iowa resident and any dividends received while a nonresident which were derived from a trade, business, or profession carried on within Iowa.

Nonresidents: Report the dividends derived from a trade, business, or profession carried on within Iowa.

4. Taxable Alimony Received

Part-year residents: Report all taxable alimony or separate maintenance payments received while an Iowa resident.

Nonresidents: Do not enter anything on this line.

5. Business Income or (Loss)

Part-year residents: Report the amount of business income or loss from federal Schedule 1, line 3 earned while an Iowa resident, and report any portion of the total business income or loss earned while a nonresident using the instructions for nonresidents given below.

Nonresidents: Report the portion of business income or loss from federal Schedule 1, line 3 attributable to a trade, business, or profession carried on within Iowa. Include a supporting schedule showing Iowa gross receipts divided by total gross receipts for each business; multiply this ratio times the total net income from the corresponding business. A sale of goods is considered an Iowa sale if goods are delivered or shipped to a point within the state regardless of Freight on Board (F.O.B.) point. A sale of a service is considered an Iowa sale if the recipient of the service receives the benefit of the service in Iowa.

6. Capital Gain or (Loss)

Part-year residents: Include 100% of the capital gain or loss from assets sold while an Iowa resident. In addition, capital gain or loss from assets sold while a nonresident of Iowa should be reported on the basis of the instructions for nonresidents that follow.

Nonresidents: Include in Iowa income 100% of capital gain or loss from the following:

a.     Sales of real or tangible personal property if the property was located in Iowa at the time of the sale; or

b.     Sales of intangible personal property if the taxpayerā€™s commercial domicile is in Iowa.

Note: You may have an Iowa-source gain even if you have a net loss on the federal return.

7. Other Gains or (Losses)

Part-year residents: Report 100% of gains or losses from assets sold or exchanged while an Iowa resident and any gains or losses while a nonresident if the property was located in Iowa at the time of sale or exchange.

Nonresidents: Report any gains or losses reported if the property was located in Iowa at the time of sale or exchange.

Note: You may have an Iowa-source gain even if you have a net loss on the federal return.

8. Rents, Royalties, Partnerships, Estates, Trusts, Etc.

Part-year residents: Report the amount of rents, royalties, and income from partnerships or estates from federal Schedule 1, line 5 which was earned or received while an Iowa resident, and report any portion of the total income earned or received while a nonresident using the instructions for nonresidents below.

Nonresidents: Report all rents and royalties from federal Schedule 1, line 5 from Iowa sources. Report the portion of partnership or S corporation income or loss from federal Schedule 1, line 5 attributable to business conducted in Iowa. Include a supporting schedule for the business calculated in the same manner as the instructions for nonresidents given for line 5 above.

9. Farm Income or (Loss)

Part-year residents: Report all net farm income from federal Schedule 1, line 6 earned or received while an Iowa resident. Also report all net income from Iowa farm activities while a nonresident using the instructions for nonresidents given below.

Nonresidents: Report the total net income from federal Schedule 1, line 6 from Iowa farm activities. If farm activities were conducted both within and without Iowa, provide a separate schedule showing allocation of the income and expenses to Iowa.

10. Unemployment Compensation

Railroad unemployment income: Prior to entering any income on line 10, subtract any amount of modification claimed on IA 1040, Schedule 1, line 8 that is attributable to Iowa.

Part-year residents: Report all unemployment benefits received while an Iowa resident and those benefits received the rest of the year that relate to past employment in Iowa.

Nonresidents: Report the unemployment benefits that relate to employment in Iowa. If the unemployment benefits relate to employment in Iowa and employment in another state, report the benefits to Iowa in the ratio of Iowa salaries and wages to total salaries and wages.

11. Gambling Winnings

Part-year residents: Report any gambling winnings which were received while an Iowa resident or income from Iowa sources while a nonresident. Do not include any losses from gambling.

Nonresidents: Report all gambling winnings from Iowa sources. Do not include any losses from gambling.

12. Other Income

Part-year residents: Report any other income including income on IA 1040 Schedule 1, lines 9 and 11, which was earned in Iowa or received while an Iowa resident. This includes any federal nonconformity adjustments including the depreciation/section 179 adjustment from the IA 4562A. This also includes non-exempt pension, annuity, and IRA income received while an Iowa resident. Report IA source K-1 modifications from IA 1040 Schedule 1, line 3 on this line using code ā€œeeā€.

Nonresidents: Report all other income from IA 1040, Schedule 1, lines 9 and 11 from Iowa sources. This includes the bonus depreciation and section 179 adjustment attributable to Iowa from the IA 4562A. Where this other income or adjustment relates to income allocated to Iowa on another line of this form, include such other income or adjustments in the same ratio as the income to which it relates was allocated to Iowa. Report the Iowa-source amount of your IA K-1 modifications from IA 1040 Schedule 1, line 3, and Iowa allocated income from your IA 1065 K-1, line 20(b), or IA 1120S K-1, line 17(b), on this line using code ā€œeeā€.

13. Iowa-Source gross income

Add lines 1-12

14. Federal total income from IA 1040, line 1 Enter federal total income from IA 1040, line 1a

Enter federal total income from IA 1040, line 1a.

15. Iowa modifications to federal total income

Enter the amount of Iowa modifications to federal total income reported on IA 1040 Schedule 1, line 13, less the amount of federal net operating loss reported on IA 1040, Schedule 1, line 10.

16. Total

Add lines 14 and 15.

17. Payments to an IRA, KEOGH, or SEP

Column A: Enter all-source modifications from federal Schedule 1, lines 16 and 20.

Column B: Deduct payments made to an IRA, Keogh, or Simplified Employment Plan (SEP) plan:

  • Part-year residents: while an Iowa resident.
  • Nonresidents: Do not report anything in Column B.

18. Deductible Part of Self-Employment Tax

Column A: Enter all-source modifications from federal Schedule 1, line 15.

Column B: Deduct the portion of the self-employment tax:

  • Part-year residents: attributable to the self-employment income earned while an Iowa resident.
  • Nonresidents: in the ratio of your Iowa self-employment income to your total self-employment income.

19. Health Insurance Deduction

Column A: Enter the total of any amounts from IA 1040, Schedule 1, line 15 and federal form 1040, Schedule 1, line 17.

Column B: Enter 100% of the health insurance premiums:

  • Part-year residents:
    • paid by a self-employed individual while an Iowa resident,
    • not withheld from your wages on a pretax basis while an Iowa resident, or
    • that you paid while an Iowa resident.
  • Nonresidents (Do not report anything in this column if paid directly by the taxpayer):
    • paid by a self-employed individual in the ratio of Iowa self-employment income to total self-employment income, or
    • not withheld from your wages on a pretax basis in the ratio of Iowa wages to total wages.

20. Penalty on Early Withdrawal of Savings

Column A: Enter all-source modifications from federal schedule 1, line 18.

Column B: Deduct the amount of any penalty you were charged because you withdrew funds from your time savings deposit before its maturity:

  • Part-year Residents: while an Iowa resident or what was derived from an Iowa trade, business, or profession.
  • Nonresidents: that was derived from an Iowa trade, business, or profession.

21. Alimony Paid

Column A: Enter all-source modifications from federal Schedule 1, line 19a

Column B: Deduct alimony paid:

  • Part-year residents: while an Iowa resident.
  • Nonresidents: Do not report anything in Column B.

22. Iowa Capital Gain Deduction

Column A: Enter amount from IA 1040, Schedule 1, line 16

Column B: Enter 100% of qualifying capital gain deduction attributable to Iowa sources.

23. Other Adjustments

Column A: Enter amounts from IA 1040, Schedule 1, line 19 and any other federal adjustments from federal Schedule 1, Part II, prior to the calculation of federal adjusted gross income (federal form 1040, line 11) not taken elsewhere on the IA 126 (other adjustment code ā€˜ddā€™).

Column B: Of the amounts on Column A, deduct miscellaneous adjustments to income in the same ratio as the income to which the adjustment relates was allocated to Iowa.

24. Total Adjustments

Add lines 17-23

25. Iowa-Source Net Income

Subtract line 24, column B from line 13 and enter the difference on this line. If line 25 is $1,000 or more, or if you are subject to Iowa lump-sum tax, complete lines 26 through 32. If line 25 is less than $1,000 and you are not subject to Iowa lump-sum tax, you are not required to file an Iowa income tax return and are exempt from Iowa tax.

Married taxpayers filing separately must combine their Iowa income amounts for purposes of the $1,000 filing threshold. If you had Iowa tax withheld and are requesting a refund, or you choose to file an Iowa return even if you are not required to do so, enter 100% on line 28, complete the remainder of the schedule, and enter the credit amount on the IA 1040, line 13.

26. All Source Net Income

Subtract line 24, column A from line 16.

27. Iowa Income Percentage

Divide line 25 by line 26. Enter percentage rounded to the nearest ten-thousandth of a percent (e.g. 12.3456%).This can be no more than 100.0% and no less than 0.0%

28. Nonresident or Part-year resident credit percentage

Subtract the percentage on line 27 from 100.0%.

Enter percentage rounded to nearest ten-thousandth of a percent (e.g. 12.3456%).

29. Iowa tax on total income from IA 1040

Enter the amount from IA 1040, line 5.

30. Total Credits from IA 1040

Enter the amount from IA 1040, line 11.

31. Tax After Credits

Subtract line 30 from line 29.

Single taxpayers (filing status 1) who used the Tax Reduction Worksheet to calculate the amount on IA 1040, line 12 should enter the amount from IA 1040, line 12 on the IA 126, line 31.

32. Nonresident or part-year resident credit.

Multiply line 31 by the percentage on line 28. Enter this amount on IA 1040, line 13