Line 15: Out-of-State Tax Credit

• Line: 15
• Step: 5
• Step Subject: Tax, Non-refundable Credits & Checkoff Contributions
• Instruction Year: 2023

For additional information on the Iowa out-of-state tax credit, see Iowa Administrative Code rules 701—304.6.

Who May Use the IA 130?

Only Iowa residents or part-year residents with an income tax liability outside of Iowa, local jurisdiction outside of Iowa, or foreign country may reduce their Iowa tax liability by claiming an Iowa Out-of-State Tax Credit using the IA 130 Out-of-State Tax Credit (41-130).

Part-year residents of Iowa may claim this credit only if any income earned while an Iowa resident was also taxed by another state, local jurisdiction outside of Iowa, or foreign country. Only income included on the IA 126 form and taxed by another state, local jurisdiction outside of Iowa, or foreign country, may qualify for this credit.

Nonresidents of Iowa may NOT claim this credit.

Caution: Shareholders of S corporations who have income from the corporation that was apportioned outside Iowa through a claim to the IA 134 S Corporation Apportionment Tax Credit may NOT claim an out-of-state credit on this S corporation income.
Filing Requirements

Complete a separate IA 130 for each state, local jurisdiction outside of Iowa, or foreign country. Separate IA 130s are not required for foreign taxes paid by mutual funds or other regulated investment companies. The credit or portion of the credit must not exceed the amount of the Iowa tax imposed on the same income that was taxed by the other state, local jurisdiction outside of Iowa, or foreign country.

When filing your IA 1040, include all IA 130 schedules, the income tax return you filed with the other state, local jurisdiction outside of Iowa, or foreign country, the supplemental schedule that was provided by your pass-through entity if you are claiming income taxes paid by your pass-through entity, and federal form 1116, Foreign Tax Credit, if you are claiming income taxes paid to a foreign country and it is required with your federal return.

Married Filing Separate Filers

If a taxpayer is married filing separately in Iowa but married filing jointly in another state, only the taxpayer’s portion of the income taxed by the other state may be used in calculating the out-of-state tax credit. The spouse’s income should be excluded from any amount of income reported on IA 130. 

Lump-Sum Distribution Tax

Do not include any lump-sum distribution tax when computing this credit for regular income tax paid. You must compute this credit separately for regular income tax and special lump-sum distribution tax. For more information, see the special instructions for lump-sum distribution tax at the end of these instructions.

Line Instructions for IA 130

Part 1: Iowa Source Income Taxed by Another State or Jurisdiction

1. Wages, Salaries, Tips, Etc.

Include all W-2 income earned or received while an Iowa resident and taxed in another state, local jurisdiction outside of Iowa, or foreign country. For Iowa residents with W-2 income from Illinois, see Iowa - Illinois Reciprocal Agreement.

Married Separate Filers:
W-2 income is reported by the spouse earning the income.

2. Taxable Interest Income

Report all interest shown on the IA 1040 that accrued while an Iowa resident which was derived from a trade, business, or profession carried on outside of Iowa and taxed in another state, local jurisdiction outside of Iowa, or foreign country. 

Married Separate Filers:
Divide interest income based on ownership of the account or certificate.

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

3. Dividend Income

Report all dividends received while an Iowa resident that was taxed in another state, local jurisdiction outside of Iowa, or foreign country. 

4. Alimony Received

Report all taxable alimony or separate maintenance payments received while an Iowa resident that was taxed in another state, local jurisdiction outside of Iowa, or foreign country.

Married Separate Filers:
Reported by the spouse who received the alimony.

5. Business Income or (Loss)

From the total business income or loss shown on the federal Schedule 1, line 3, report the amount earned while an Iowa resident that was taxed in another state, local jurisdiction outside of Iowa, or foreign country.

Married Separate Filers:
Reported by the spouse deriving the income or loss.

6. Capital Gain or (Loss)

Include 100% of the capital gain or loss from assets sold while an Iowa resident that was taxed in another state, local jurisdiction outside of Iowa, or foreign country. 

Married Separate Filers:
Taxpayers should report capital gain or loss as reported for federal tax purposes.

7. Other Gains or (Losses)

Report 100% of gains or losses from assets sold or exchanged while an Iowa resident that was taxed in another state, local jurisdiction outside of Iowa, or foreign country.

Married Separate Filers:
Divide gains or losses based on ownership of the asset sold or exchanged.

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

Report all income shown on federal Schedule E that was earned or received while an Iowa resident that was taxed in another state, local jurisdiction outside of Iowa, or foreign country. 

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)

Report all net farm income earned or received while an Iowa resident that was taxed in another state, local jurisdiction outside of Iowa, or foreign country. 

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

Report all unemployment benefits received while an Iowa resident  that was taxed in another state, local jurisdiction outside of Iowa, or foreign country.

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

Report any gambling winnings that were received while an Iowa resident  that was taxed in another state, local jurisdiction outside of Iowa, or foreign country

Married Separate Filers:
The spouse to whom the income was paid must report that income.

12. Other Income

Report any income on the IA 1040, Schedule 1, line 11 which was received while an Iowa resident that was taxed in another state, local jurisdiction outside of Iowa, or foreign country. 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 that was taxed in another state, local jurisdiction outside of Iowa, or foreign country.

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 1.

13. Iowa Gross Income Taxed by Another Jurisdiction

Add lines 1 through 12.

Part II: Calculation of Credit

14. Federal Total Income - Enter amount from IA 1040, line 1.

15. Iowa Modifications to Federal Total Income - Enter amount from IA Schedule 1, line 13.

16. Total Iowa Income - Add lines 14 and 15.

17. Divide line 13 by line 16 and enter the percentage rounded to the nearest ten-thousandth of a percent (e.g. 12.3456%). Do not exceed 100.0%.

18. Amount from IA 1040, line 14.

19. Multiply line 18 by the percentage on line 17.

20. Enter the income tax imposed by the other state or jurisdiction and paid by you on income included on line 13. 

Enter the income tax actually shown due and paid by you as calculated from the tax formula/tables on the other state, local jurisdiction outside of Iowa, or foreign country's tax return you filed, less any nonrefundable credits, and less any refundable credit provided to you for entity-level taxes paid by a pass-through entity (see example for line 21 below). This is not the amount withheld from your wages or paid as estimated income tax payments, and does not include taxes deemed to be paid to another jurisdiction for purposes of computing the federal foreign tax credit on your federal form 1116.

Caution: Do not include on this line any income tax paid on any income from an S corporation if you are claiming an IA 134 S Corporation Apportionment Tax Credit for that S corporation.

21. Enter the income tax imposed by the other state or jurisdiction and paid by your pass-through entity or mutual fund on income included on line 13.

If your distributive share of income from a pass-through entity was taxed by another state, local jurisdiction outside of Iowa, or foreign country but reported on a composite return, or if a pass-through entity was subject to an entity-level income tax in another state, local jurisdiction outside of Iowa, or foreign country on your distributive share of income also taxed by Iowa, your pro-rata share of this income tax will be identified on a schedule provided to you by your pass-through entity. Enter your reported pro-rata share of the income tax on this line. This will be your pro-rata share of the income tax actually shown due and paid by the pass-through entity as calculated from the tax formula/tables on the other state, local jurisdiction outside of Iowa, or foreign country’s tax return filed by the pass-through entity, less any nonrefundable credits. This is not the amount withheld or paid as estimated income tax payments. However, if you receive a refundable tax credit in the other state, local jurisdiction outside of Iowa, or foreign country for all or part of the entity-level income tax paid by a pass-through entity, the amount of the refund attributable to that refundable credit reduces the income tax paid by the pass-through entity.

Example: Individual B, a 50% owner of Partnership P doing business in State Z, receives a statement from Partnership P showing that P paid $500 of entity-level income tax to State Z, and B’s pro-rata share of that income tax is $250. B also received a $250 refundable tax credit from State Z for B’s share of the entity-level income tax paid by partnership P. B files an income tax return in State Z to report their pro-rata share of income from Partnership P and calculates tentative income tax of $200. B applies their $250 refundable tax credit against that tentative income tax, resulting in an income tax liability of $0 and  a refund of $50. Therefore, B enters $0 on IA 130, line 20, and must also reduce their pro-rata share of the entity-level income tax paid by partnership P by $50 as reported on line 21. B enters $200 ($250 - $50) on line 21.

If you do not receive a schedule from your pass-through entity reporting your pro-rata share of composite return or entity-level income taxes paid to the other state, local jurisdiction outside of Iowa, or foreign country, you are not eligible to claim the Iowa Out-of-State Tax Credit. Include a copy of that schedule with your IA 1040.
If your mutual fund or other regulated investment company paid foreign income tax and passed the amount through to you, your share of this income will be identified on the Form 1099-DIV or similar statement provided to you. If you do not receive such a form or statement, you are not eligible to claim the Iowa Out-of-State Tax Credit.

Caution: Do not include on this line any income tax paid by an S corporation, or reported to you by an S corporation, if you are claiming an IA 134 S Corporation Apportionment Tax Credit for that S corporation.

22. Enter the sum of lines 20 and 21

Full-Year Residents (part-year residents skip)

23. Enter the smaller of lines 19 or 22 and enter this amount on IA 1040, line 15. This is your Out-of-State Tax Credit.

Part-Year Residents

24. Enter the total amount of gross income taxed by the other state or jurisdiction.

25. Divide line 13 by line 24 and round to the nearest ten-thousandth of a percent (e.g. 12.3456%). Do not exceed 100.0%.26. Multiply line 22 by the percentage on line 25.

27. Enter the smaller of lines 19 or 26 and enter this amount on IA 1040, line 15. This is your Out-of-State Tax Credit.
Special Instructions for Minimum Tax or Lump-Sum Distribution Tax

Compute Separately: If you were assessed a special tax on a lump-sum distribution by another state or local jurisdiction outside of Iowa on items similarly taxed on your Iowa return, you must complete a separate IA 130 for these items. Do not include a special lump-sum tax when computing the regular tax credit. Please write “Lump-sum Tax” next to the amount on IA 130, line 18 and next to the state or other jurisdiction in the header of the form.

Lump-sum Distribution: Enter $0 for IA 130, lines 1-11. Report on IA 130, lines 12 and 13 the amount of distribution subject to special lump-sum tax by Iowa and the other state or jurisdiction. Do not include a distribution taxed by the other state or local jurisdiction outside of Iowa as part of gross income. Report on IA 130, line 14 the total federal lump-sum distribution amount and enter $0 on IA 130, line 15. Report on IA 130, line 18 the Iowa lump-sum distribution tax from IA 1040, line 6. Report on IA 130, line 20 only the amount of tax imposed on the lump-sum distribution imposed by the other state or jurisdiction. For part-year residents, only enter the amount of the lump-sum distribution taxed by the other state or jurisdiction on IA 130, line 24. Complete the rest of the form as instructed on the form.

Note: The below examples are abbreviated versions of the IA 130. You must fill out the entire IA 130 and include it with your return.

Example 1: Full-Year Iowa Residents Only

Terry lived in Iowa all year but worked in both Iowa and Nebraska. Terry earned $10,000 in Iowa, and also earned $15,000 in Nebraska that was taxed by Nebraska. Terry has no Iowa modifications from Schedule 1. Terry files as a single taxpayer and claims the standard deduction.

*“Tax imposed” is the income tax calculated from the tax formula/tables on the other state, local jurisdiction outside of Iowa, or foreign country's tax return, less any nonrefundable credits, and less any refundable credit for entity-level taxes paid by a pass-through entity. Do not reduce this figure by the tax withheld or estimated tax payment made to the other state, local jurisdiction outside of Iowa, or foreign country.

**”Tax imposed” is your pro-rata share of the income tax of the pass-through entity calculated from the tax formula/tables on the other state, local jurisdiction outside of Iowa, or foreign country’s tax return filed by the pass-through entity, less any nonrefundable credits of the pass-through entity, and less any refund attributable to a refundable credit provided to you for entity level taxes paid by a pass-through entity. Do not reduce this figure by the tax withheld or estimated tax payment made to the other state, local jurisdiction outside of Iowa, or foreign country.

Example 2: Part-year Iowa Residents Only

Bradley lived in Iowa until the end of June. On July 1, Bradley moved to Missouri. Bradley worked all year in the state of Missouri. They earned a salary of $30,000 for the year, $15,000 while residing in Iowa and $15,000 while residing in Missouri. Bradley also earned $10,000 farm rental income from farmland located in Iowa. Bradley has no Iowa modifications from Schedule 1. Bradley files as a single taxpayer and claims the standard deduction.

*“Tax imposed” is the income tax calculated from the tax formula / tables on the other state, local jurisdiction outside of Iowa, or foreign country's tax return, less any nonrefundable credits, and less any refundable credit for entity-level taxes paid by a pass-through entity. Do not reduce this figure by the tax withheld or estimated tax payment made to the other state, local jurisdiction outside of Iowa, or foreign country.

**”Tax imposed” is your pro-rata share of the income tax of the pass-through entity calculated from the tax formula/tables on the other state, local jurisdiction outside of Iowa, or foreign country’s tax return filed by the pass-through entity, less any nonrefundable credits of the pass-through entity, and less any refund attributable to a refundable credit provided to you for entity level taxes paid by a pass-through entity. Do not reduce this figure by the tax withheld or estimated tax payment made to the other state, local jurisdiction outside of Iowa, or foreign country.