Iowa Tax Responsibilities of Military Personnel
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BEGINNING WITH TAX YEAR 2011: Members of the armed forces, armed forces military reserve, and the national guard in an active duty status (as defined in Title 10 of the U.S. Code) can exclude pay received from the federal government for military service performed.
Active-duty military service pay is taxable only by the state in which the armed forces service member is a legal resident, which is usually the state of residence at the time he/she enters the service. In general, income other than active-duty military service pay of an Iowa resident in military service is taxable to the same extent as it is taxable for federal purposes, even if the Iowa resident is stationed outside of Iowa or outside of the United States.
Iowa residents who are members of the military should include the active duty pay received from the federal government for military service performed as income on line 1 of the IA 1040 and deduct the same active duty pay on line 24. These individuals should provide an IA W-4 to the payer of this income, claiming exemption from withholding on active duty pay. Military members claiming this exclusion should be prepared to send a copy of their active duty military orders if requested by the Department.
When must a military person file an Iowa income tax return?
If a military person is an Iowa resident, he or she must file an Iowa individual income tax return if:
- married and their combined income* totals more than $13,500 ($32,000 if you or your spouse is 65 or older on 12/31/14)
- single and total income* is more than $9,000 ($24,000 if 65 or older on 12/31/14)
- has income* of $5,000 or more and is claimed as a dependent on another person's Iowa return
- filing as head of household or qualifying widow(er) and total income* is more than $13,500 ($32,000 if you or your spouse is 65 or older on 12/31/14)
*does not include pay received from the federal government for military service performed by members of the armed forces, armed forces military reserve, and the national guard in an active duty status
School District Surtax
The school district surtax is applicable for resident members of the armed forces of the United States living in an Iowa school district, even if the member is not physically present in Iowa on the last day of the tax year. (IAC 42.1)
Residency (IAC 38.17)
Each person has one and only one state of residence. A person may be a resident of a state even though he or she does not actually live in the state.
A military person does not lose “home state” residency simply by being absent from the state while in the military. (Servicemembers Civil Relief Act)
When is a military person an Iowa resident?
A military person is an Iowa resident if:
- he or she was a resident of Iowa at the time of enlistment and/or
- Iowa is declared as his or her Military Home of Record
A person remains an Iowa resident until positive action is taken to establish residency in another state.
Establishing residency in another state
To establish residency in another state, a military person should first complete form DD2058, State of Legal Residence Certificate, which is available from the payroll officer of the Military Office of Personnel. This alone does not establish residency. A combination of the actions listed below is required to establish legal residence in another state.
- physical presence in the other state
- registering to vote in the other state
- changing driver’s license
- registering vehicles in the other state
- applying for other privileges offered by the other state
- payment of real estate tax and/or income tax in the new state
If steps are not taken to change residency, a military person remains a resident of Iowa and is subject to Iowa income tax laws.
The director of the Iowa Department of Revenue may require an individual to provide proof that residency has been established in another state.
Residency of spouses of military personnel
A spouse of an Iowa-resident military person is not considered a resident of Iowa simply by marriage. If, however, the spouse was an Iowa resident when they married, the spouse is an Iowa resident until other action is taken to establish residency in another state.
If the spouse is an Iowa resident and has Iowa-source income, it may be beneficial to use filing status 3 (married filing separately on the combined return form).
Filing status 3 or 4 (married filing separately on the combined return or married filing separate returns) may be used by nonresident spouses with no Iowa-source income.
Military spouses please see this information on the Military Spouses Residency Relief Act.
Nonresidents / part-year residents stationed in Iowa
Military persons who are not residents of Iowa are required to file Iowa income tax returns if their all-source income meets the above requirements and their Iowa-source income is $1,000 or more.
Nonresidents and part-year residents must file both the IA 1040 and the IA 126 with a complete copy of the federal return.
Nonresident Military Income
Beginning with tax year 2003, the following apply for Iowa as a result of federal legislation.
The nonresident military taxpayer does not include military pay on line 1 of the IA 1040 and also does not report it as Iowa income on the IA 126. The net result is a reduction of the tax rate on any other Iowa-source income.
In general, this applies only to active duty military and does not include the National Guard or reserve personnel.
Exceptions may exist if nonresident military are under active duty orders under a specific federal section -- 502(f) of Title 32 of the United States Code.
All income, excluding military pay, is included on the Iowa income tax return (IA 1040) and tax is initially calculated on all-source income. Once this is done, the nonresident or part-year resident turns to another Iowa form, the IA 126 Nonresident and Part-Year Resident Schedule. Only Iowa-source income is included on this form and will not include military pay when calculating the credit. That credit is entered on the IA 1040 and is designed to minimize the taxation of income by Iowa and the other state.
What income is subject to Iowa tax? (IAC 40.5)
Military pay to Iowa residents must be included on line 1 of the IA 1040 to the same extent it is included on the federal return regardless of where the person is stationed when it is received.
Other income earned by an Iowa resident stationed in or out of Iowa is also taxable to Iowa to the same extent it is taxable on the federal level. If any of that income is correctly taxed by another state, then Iowa allows an out-of-state tax credit on the IA 1040. This credit is calculated on the IA 130 form, which must be included with the IA 1040 with a copy of the other state's return.
What income is not subject to Iowa tax?
Active duty pay
Members of the armed forces, armed forces military reserve, and the national guard in an active duty status (as defined in Title 10 of the U.S. Code) can exclude pay received from the federal government for military service performed.
NOTE: Members who are employed full-time in the national guard (as defined in Title 32 of the U.S. Code) are not considered in an active duty status, so their pay is not excluded from Iowa tax.
Include all income on line 1 with other W-2, 1099, or W-2G income. Qualifying military income is then deducted on line 24.
Combat zone pay
Income excluded by the federal government is also excluded for Iowa income tax purposes. For example, combat zone pay is excluded on the Iowa return because it is excluded for federal income tax purposes.
The federal Military Family Tax Relief Act of 2003 provides for a number of tax breaks related to military personnel. Iowa follows the federal treatment of the military adjustments to gross income.
The Internal Revenue Service Web site is your best source of qualifying combat zones and tax breaks related to military personnel.
Operation Iraqi Freedom, Operation New Dawn, Operation Noble Eagle, or Operation Enduring Freedom (IAC 40.61)
There is an income tax exemption for active duty pay received from a source other than the federal government by a person in the National Guard or armed forces military reserve for service performed on or after January 1, 2003, pursuant to military orders for Operation Iraqi Freedom, Operation New Dawn, Operation Noble Eagle, or Operation Enduring Freedom. The individual needs only to be called to active duty under the appropriate orders to qualify for the exemption of active duty pay. The individual does not have to be serving overseas to be eligible for the exemption, but can be serving in Iowa or elsewhere in the United States under the appropriate military orders and qualify for the exemption for active duty pay.
Note that prior to tax year 2011, if a person in the National Guard or military reserve was called to active duty pursuant to military orders for an operation or purpose other than the operations specified above, the active duty pay is not exempt from Iowa income tax. (IAC 40.61)
Include all income on line 1 with other W-2, 1099, or W-2G income. Qualifying military income is then deducted on line 24. If you file a paper return, include a copy of your orders. If you file electronically, keep a copy of your orders with your tax records in case the Department requests them at a later date.
Persian Gulf Conflict and/or Bosnia-Herzegovina Peacekeeping (IAC 40.40, IAC 40.51)
There is an income tax exemption for active-duty pay received from a source other than the federal government by a person in the National Guard or armed forces military reserve for services performed on or after August 2, 1990, pursuant to military orders related to the Persian Gulf Conflict and/or for services performed on or after November 21, 1995, pursuant to military orders related to peacekeeping in Bosnia-Herzegovina.
Military Student Loan Exemption (IAC 40.63)
Military student loan repayments included in federal adjusted gross income are exempt from Iowa income tax if the following criteria are met.
This exemption may be taken by persons in the:
- armed forces
- armed forces military reserve
- National Guard
The individual must be on active duty at the time of the loan repayment.
Include the loan repayment amount in line 1 and deduct it in line 24. (IAC 40.63)
Exclusion of Distributions from Retirement Plans by National Guard members and members of military reserve forces of the United States
If a National Guard member or member of the military reserve is called to active state or federal duty and makes a withdrawal from a qualified retirement account of the member, the amount of the withdrawal is not subject to Iowa income tax or state tax penalty. If this income is reported as taxable pension income on line 9 of the Iowa return, enter that amount on line 24 of the Iowa 1040.
Deferral of Collection of State Income Tax
Please see information on the Servicemember Civil Relief Act.
Forgiveness of Tax (IAC 39.11)
Iowa income tax is forgiven if:
- the deceased was killed in a combat zone, or
- the taxpayer is missing in action and presumed dead, or
- the deceased was killed outside the United States due to terrorist or military action while he/she was a military or civilian employee of the United States and
- the person's federal income tax was forgiven
Iowa income tax is forgiven for the tax year in which the individual was killed or was missing and presumed dead and for the tax year prior to the year of death.
Married / year of death
If the deceased was married at the time of death, all tax is forgiven for the year of death if the filing status is joint or married filing separately on the combined return for that tax year.
Married / prior year
All tax is forgiven if the deceased was married at the time of death and a joint return or a married filing separate return was filed for the year prior to death. Please note that if the deceased had filed using the married filing separately on the combined return status, only the state income tax attributable to the deceased will be forgiven. Prior-year returns cannot be amended to change the filing status. (IAC 39.11)
Return Due Date and Extensions (IAC 39.12, IAC 39.14)
The usual filing deadline for Iowa income tax returns is April 30. If 90 percent of the tax due is paid by that time, the deadline is extended to October 31. No extension form is available or required.
Qualifying individuals are granted extensions under certain circumstances for filing returns and for other acts related to the Department. These are listed below.
Who qualifies for an extension?
- Individuals on active duty federal military service in the armed forces, armed forces military reserve, or National Guard who are deployed outside the United States
- A person in the military serving in support of those forces
- A spouse of a person listed above if they file jointly or separately on a combined return
- An eligible individual who was continuously hospitalized because of illness or injury in the combat zone
“ Other acts related to the Department” includes:
- Filing claims for refund for any tax administered by the Department
- Making tax payments other than withholding payments
- Filing appeals on the tax matters
- Filing other tax returns
- Performing other acts described in the Department’s rules
In general, the additional time period for filing state returns and performing other acts is 180 days.
IRS Military Web Page
For further information about federal provisions, go to the Internal Revenue Service Web site at www.irs.gov