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: 2023

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 701—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 Michael’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.

Michael’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. Nick’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 individual’s state of residence. All income received from other Iowa sources (gambling, unemployment, etc.) is taxable to Iowa regardless of the person’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 Tiana’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 spouse’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.

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 or local jurisdiction in another 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.

Severance pay and vacation pay from Iowa employment are Iowa-source income even if the pay was received after leaving Iowa.

Note to nonresident military taxpayer:

As a result of federal legislation, the nonresident military taxpayer does not include military pay on the IA 1040, line 1 (nor is it reported on the IA 1040). In general, this applies to active duty military and does not include the National Guard or reserve personnel.

Military spouses, please see Iowa Tax Responsibilities of Servicemembers and Their Spouses

Married Separate Filers:

W-2 income is reported by the spouse earning the income.

2. Taxable Interest Income

Part-year residents:

Report all interest shown on the IA 1040 that 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. Interest earned from an Iowa bank account is only considered Iowa-source income while the taxpayer is an Iowa resident.

Nonresidents:

Report only the interest derived from an Iowa trade, business, or profession.

Married Separate Filers:

Divide interest income based on ownership of the account or certificate.

Jointly held: Divide equally between spouses.
Held in the name of only one spouse: Allocate interest wholly to that spouse.

3. Dividend Income

Part-year residents:

Report all dividends received while an Iowa resident and any dividends derived from an Iowa trade, business, or profession while a nonresident.

Nonresidents:

Report the dividends derived from an Iowa trade, business, or profession.

Married Separate Filers:

Divide dividends based on registered ownership of stock.

Jointly held: Divide equally.
Held in the name of only one spouse: Allocate dividends wholly to that spouse.

4. 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.

Married Separate Filers:

Reported by the spouse who received the alimony.

5. Business Income or Loss

Part-year residents:

From the total business income or loss shown on federal Schedule 1, line 3, report the amount 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 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.

Married Separate Filers:

Reported by the spouse deriving the income or loss.

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:

Sales of real or tangible personal property if the property was located in Iowa at the time of the sale; or
Sales of intangible personal property if the taxpayer's commercial domicile is in Iowa.

NOTE: You may have a gain here even if you have a net loss on the federal return.

Married Separate Filers:

Taxpayers who filed separate federal returns should report capital gain or loss as reported for federal tax purposes.

If a joint federal return was filed, each spouse must report capital gain on the basis of ownership of the property sold or exchanged. The combined net capital gain or loss must be the same as reported on the joint federal return.

If a joint federal return was filed and both spouses have capital losses, each spouse may claim up to a $1,500 capital loss plus any unused portion of their spouse's $1,500 loss limitation. If both spouses are reporting capital losses, the sum of both spouses' losses may not exceed $3,000.

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 from federal form 4797 while a nonresident if the property was located in Iowa at the time of sale or exchange.

Nonresidents:

Report any gains or losses from federal form 4797 if the property was located in Iowa.

NOTE: You may have a gain here even if you have a net loss on the federal return

Married Separate Filers:

Divide gains or losses based on ownership of the asset sold or exchanged.

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

Part-year residents:

Report all income shown on federal Schedule E that was earned or received while an Iowa resident. Also report all rents and royalties from Iowa sources and all Iowa partnership or S corporation income earned or received while a nonresident.

Nonresidents:

Report all rents and royalties from Iowa sources and all Iowa partnership or S corporation income. See instructions for allocation of business income on line 5 of this section.

Married Separate Filers:

Divide income or loss from Schedule E based upon ownership of the assets or business interest producing the income or loss, or the individual named as beneficiary.

9. Farm Income or (Loss)

Part-year residents:

Report all net farm income 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 the 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.

Married Separate Filers:

Farm income must be reported by the spouse who claims it for self-employment tax purposes on the federal Schedule SE.

If the other spouse claims a share of the farm income, then that spouse must attach a worksheet showing how that share was determined based on capital contribution, management and control, and services rendered.

10. Unemployment Compensation

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 on the basis of the Iowa salaries and wages to the total salary and wages.

Married Separate Filers:

If both spouses received unemployment benefits, each of the spouses should report the benefits received as shown on the 1099-G(s) for each spouse.

11. Gambling Winnings

Part-year residents:

Report any gambling winnings that were received while an Iowa resident or winnings from Iowa sources while a nonresident.

Nonresidents:

Report any gambling winnings that were received from Iowa sources.

Married Separate Filers:

The spouse to whom the income was paid must report that income.

12. Other Income

Part-year residents:

Report any income on the IA 1040, Schedule 1, line 11 which was received while an Iowa resident or income from Iowa sources while a nonresident. 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.

Nonresidents:

Report all other income 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.

Married Separate Filers:

The spouse to whom the income was paid must report that income.

Modifications to partnership and S corporation income are allocated between spouses in the same manner as that income was divided on IA 1040, line 10.

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 1

15. Iowa modifications to federal total income from IA 1040 Schedule 1, line 13

Enter Iowa modifications to federal total income from IA 1040 Schedule 1, line 13

16. Total

Add lines 14 and 15.

17. Payments to an Individual Retirement Account (IRA), Keogh, or Simplified Employment Plan (SEP)

Part-year residents:

Deduct the payments made to an IRA, Keogh, or SEP plan while an Iowa resident. Only enter the Iowa apportioned amount claimed on your federal tax return for payments made to your IRA, Keogh, SEP, SIMPLE, or other qualified plans. Payments made to a Roth IRA are not deductible.

Nonresidents:

Deduct the payments made to an IRA, Keogh, or SEP plan. Only enter the Iowa apportioned amount claimed on your federal tax return for payments made to your IRA, Keogh Plan, SEP, SIMPLE, or Qualified Plans in the ratio of Iowa earned income to total earned income. Payments made to a Roth IRA are not deductible.

Married Separate Filers:

If only one spouse has earned income, that individual can contribute up to $6,000 per year ($7,000 if 50 or older) to an IRA account of the nonworking spouse and up to $6,000 per year ($7,000 if 50 or older) to an IRA account of the individual.
When claiming the deduction between spouses, the working spouse will usually claim all of the deduction, not to exceed the federal limits for both spouses. However, if the nonworking spouse has any earned income, then the nonworking spouse must claim the deduction to the extent of their earned income. The working spouse will then claim the balance of the IRA contribution of both spouses.

If both spouses earned income and made contributions to an IRA account, each spouse must claim their own contribution, not to exceed $6,000 per spouse ($7,000 if 50 or older).

If both spouses made contributions to an IRA but only a portion of the contribution is deductible on the federal return, the amount of the IRA deduction that is allowed for federal income tax purposes must be allocated between the spouses in the ratio of the IRA contribution made by each spouse to the total IRA contribution made by both spouses.

(Example of how to prorate)

For Keogh Plans, SEPs, SIMPLE, or Qualified Plans, each spouse must claim their individual contributions.

18. Deductible Part of Self-employment Tax

Part-year residents:

Deduct the portion of the self-employment tax allowed on your federal return that is attributable to the self-employment income earned while an Iowa resident.

Nonresidents:

Deduct the portion of the amount allowed on your federal return in the ratio of your Iowa self-employment income to your total self-employment income.

Married Separate Filers:

The deduction is allocated in the ratio of self-employment tax paid by each spouse to the total self-employment tax paid.

(Example of how to prorate)

19. Health Insurance Deduction for Over 65 Years Old

Note: This deduction is only available for taxpayers who are 65 years of age or older and whose Iowa taxable income is less than $100,000.

Part-year residents:

Self-employed: Enter the health insurance premiums reported on the Iowa 1040, Schedule 1, line 15, paid by a self-employed individual while an Iowa resident.

Deducted through wages: Enter the health insurance premiums reported on the Iowa 1040, Schedule 1, line 15, that were not withheld from your wages on a pretax basis while an Iowa resident.

Paid directly by the taxpayer: Enter the health insurance premiums reported on the Iowa 1040, Schedule 1, line 15, that you paid while an Iowa resident.

Excess advance premium tax credit repayment: Enter the amount from the federal 1040, Schedule 2, line 2 multiplied by your 2022 Iowa income percentage. If you filed a 2022 IA 126, your 2022 Iowa income percentage is shown on the 2022 IA 126, line 28. If you did not file a 2022 IA 126 because you were a resident of Iowa in 2022, your 2022 Iowa income percentage is 100%. If you did not file a 2022 IA 126 because you were a part-year resident or nonresident with no Iowa-source income in 2022, your 2022 Iowa income percentage is 0%.

Nonresidents:

Self-employed: Enter the health insurance premiums reported on the Iowa 1040, Schedule 1, line 15, paid by a self-employed individual multiplied by the ratio of Iowa self-employment income to total self-employment income.

Deducted through wages: Enter the health insurance premiums reported on the Iowa 1040, Schedule 1, line 15, that were not withheld from your wages on a pretax basis multiplied by the ratio of Iowa wages to total wages.

Paid directly by the taxpayer: Multiply the health insurance premiums reported on the Iowa 1040, Schedule 1, line 15, that you paid by the ratio of your Iowa-source net income on the IA 126, line 25 to total net income on the IA 1040, line 4. For this net income calculation, do not include line 19, the health insurance deduction in the above-referenced net income amounts.

Married Separate Filers:

If one spouse is employed and has health or dental insurance premiums paid through their wages post tax, that spouse will claim the entire deduction. If both spouses pay health or dental insurance premiums through their wages post tax, each spouse will claim what that individual paid.

If both spouses have self-employment income, the deduction for self-employed health or dental insurance must be allocated between the spouses in the ratio of each spouse's self-employment income to the total self-employment income of both spouses.

For taxpayers who are not self-employed, if health or dental insurance premiums are paid directly by one spouse, that spouse will claim the entire deduction. If both spouses paid through a joint checking account, the deduction will be allocated between the spouses in the ratio of each spouse's Iowa-source net income to the total Iowa-source net income of both spouses. For this calculation, do not include line 19, the health or dental insurance deduction.

(Example of how to prorate)

20. Penalty on Early Withdrawal of Savings

Part-year residents:

Deduct the amount of any penalty you were charged because you withdrew funds from your time savings deposit before its maturity while an Iowa resident. Also report any penalty you were charged while a nonresident using the instructions for nonresidents given below.

Nonresidents:

Deduct the amount of any penalty you were charged because you withdrew funds from your time savings deposit, derived from an Iowa trade, business, or profession. before its maturity.

Married Separate Filers:

Divide the penalty amount between spouses based upon registered ownership of the time deposit.

Jointly held: Divide the penalty equally between spouses.
Held in the name of only one spouse: Allocate the entire penalty to that spouse.

21. Alimony Paid

Part-year residents:

Deduct the amount of alimony allowed for federal purposes while an Iowa resident.

Nonresidents:

Deduct the amount of alimony allowed for federal purposes in the ratio of Iowa gross income to total gross income.

Married Separate Filers:

Only the spouse liable for these payments can deduct the amount of alimony allowed for federal purposes.

22. Iowa Capital Gain Deduction

Enter 100% of the qualifying capital gain deduction that is attributable to Iowa sources. See the applicable IA 100 for instructions.

Married Separate Filers:

Divide the capital gain deduction based on ownership of the asset.

Jointly held: Divide equally between spouses.
If other than jointly held: Divide between spouses based on percentage of ownership.

23. Other Adjustments

Deduct miscellaneous adjustments to income in the same ratio as the income to which the adjustment relates was allocated to Iowa.

Married Separate Filers:

When the adjustment is attributable to a specific spouse, it is taken on IA126 for that spouse.

When the adjustment is not attributable to any one spouse, it must be prorated on IA 126 for each spouse based on the Iowa-source net income amounts on line 25. Calculate through line 25 as if the adjustment in question were excluded.

If the adjustment is attributable to a dependent, such as the student loan interest deduction, it is prorated based on the Iowa-source net income before the adjustment in question.

(Example of how to prorate)

24. Total Adjustments

Add lines 17-23

25. Iowa-Source Net Income

Subtract line 24 from line 13 and enter the difference on this line. If line 25 is $1,000 or more or 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. Married taxpayers must combine their Iowa income amounts for purposes of the $1,000 filing threshold. However, if you had Iowa tax withheld and are requesting a refund, or if 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 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