Iowa Tax Responsibilities of Military Personnel

Instruction Year
2019

IOWA TAX RESPONSIBILITIES OF SERVICEMEMBERS AND THEIR SPOUSES

Resident Servicemembers

Iowa residents who are members of the armed forces, armed forces military reserve, and the National Guard in an active duty status can exclude pay received from the federal government for military service performed. “Active duty,” for Iowa tax purposes, has the same meaning as defined in 10 U.S.C. § 101(d)(1). 

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 to the Department if requested to do so.

When must a resident servicemember file an Iowa income tax return?

If a servicemember 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 12/31/19)
  • single and his or her total income* is more than $9,000 ($24,000 if 65 or older on 12/31/19)
  • 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 surviving spouse and his or her total income* is more than $13,500 ($32,000 if you or your spouse is 65 or older on 12/31/19)

 

*Income 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 (Iowa Administrative Code rule 701—42.1)

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.

What income is subject to Iowa tax? (Iowa Administrative Code rule 701—40.76)

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

Iowa resident members of the armed forces, armed forces military reserve, and the National Guard in an active duty status can exclude pay received from the federal government for military service performed. “Active duty,” for Iowa tax purposes, has the same meaning as defined in 10 U.S.C. § 101(d)(1).

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 (IRS) website is your best source of qualifying combat zones and tax breaks related to military personnel. See www.irs.gov/individuals/military

Operation Iraqi Freedom, Operation New Dawn, Operation Noble Eagle, or Operation Enduring Freedom (Iowa Administrative Code rule 701—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 services 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. 

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 (Iowa Administrative Code rules 701—40.40 and 701—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 outside the United States on or after November 21, 1995, pursuant to military orders related to peacekeeping in Bosnia-Herzegovina.

Military Student Loan Exemption (Iowa Administrative Code rule 701—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. 

Exclusion of Distributions from Retirement Plans by National Guard members and members of military reserve forces of the United States 
(Iowa Administrative Code rule 701—40.58)

If a National Guard member or member of the military reserve is called to National Guard duty or federal active 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 (Servicemembers Civil Relief Act)

The Servicemembers Civil Relief Act (SCRA) is a federal law that, among other things, requires the Department to allow a deferral of collection of state income tax if a servicemember’s ability to pay is materially affected by their military service. The deferral lasts for only a period of up to 180 days after termination or release from military service. The SCRA only defers collection of income tax that has fallen due before or during military service. Servicemembers must still file their income tax returns, unless their duty to file is suspended by another authority. 

 

Do You Qualify?

  1. You must be a “servicemember.”
    1. Members of the Army, Navy, Air Force, Marine Corps, Coast Guard, and commissioned corps of the National Oceanic and Atmospheric Administration and of the Public Health Service are servicemembers under the SCRA.
    2. Members of the National Guard and reserves are servicemembers under the SCRA only if those members are serving under a call to active service authorized by the President or the Secretary of Defense for a period of more than 30 consecutive days. 
  2. You must serve during a period of “military service.”
    1. In the case of Army, Navy, Air Force, Marine Corps, or Coast Guard, a servicemember is serving in a period of military service if they are on “active duty.”
    2. In the case of commissioned officers of the National Oceanic and Atmospheric Administration or Public Health Service, a servicemember is serving in a period of military service if they are in “active service.”
    3. In the case of members of the National Guard and reserves, a servicemember is serving in a period of military service if they are serving under a call to active service authorized by the President or the Secretary of Defense for a period of more than 30 consecutive days. 
  3. You must be “materially affected” by your military service.
    1. The Department will consider all relevant facts and circumstances in determining whether servicemembers' ability to pay their income tax has been materially affected by their military service.
  4. You must be in “filing compliance.”
    1. Servicemembers can receive a deferral of collection of income taxes only for periods in which they have filed an income tax return.
  5. You must file a written request for deferral.
    1. Servicemembers must make a written request for deferral of collection of income to the Department by completing the Request for Deferral of Iowa Income Tax form. 

 

Servicemembers must submit a copy of their orders with their Request for Deferral of Iowa Income Tax form.

Forgiveness of Tax (Iowa Administrative Code rule 701—39.11)

 

Iowa income tax is forgiven if an individual’s federal income tax was forgiven because:

  • the individual was killed in a combat zone, or
  • the individual is missing in action and presumed dead, or
  • the individual was killed outside the United States due to terrorist or military action while he or she was a military or civilian employee of the United States

 

Single status

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

All tax is forgiven for the year of death if the deceased was married at the time of death and his or her state 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. (Iowa Administrative Code rule 701—39.11)

 

Applying for Forgiveness of Tax

To claim forgiveness of tax for an individual who was killed in military or terrorist action, or who is missing in action and presumed dead, the person filing an Iowa income tax return or an Iowa claim for refund should write at the top of the return “Forgiveness of Tax—Killed in Military Action” or “Forgiveness of Tax—Killed in Terrorist Action” depending on how the deceased was killed. A copy of the deceased’s death certificate, or other evidence that establishes that the deceased was killed in military or terrorist action or is missing in action and presumed dead, should be attached to the income tax return or to the claim for refund. Claims for refund will only be honored if the claim for refund is made within the statute of limitations for claims for refund provided in Iowa Code section 422.73.

 

Return Due Date and Extensions (Iowa Administrative Code rules 701—39.12 and 701—39.14)

The usual filing deadline for Iowa income tax returns is April 30. If 90 % 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 may be 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?

  • Active duty military servicemembers in the armed forces, armed forces military reserve, or National Guard who are deployed outside the United States
  • A person serving in support of those forces
  • A spouse of a person listed above if they file jointly or separately on a combined return or if they are a party with the eligible taxpayer to any other act related to the Department
  • 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

 

Applying for the Extension

 

To claim the extension, eligible taxpayers, and, if applicable, their spouses, should notify the Department of their eligibility by sending the information described below to the Department:

 

  • Taxpayer’s name and spouse’s name
  • Taxpayer’s date of birth and spouse’s date of birth
  • Taxpayer’s U.S. address and spouse’s address
  • Date of taxpayer’s deployment overseas
  • For military personnel, an official document that indicates taxpayer’s deployment
  • For qualifying civilians, a letter of authorization, a similar letter from the taxpayer’s employer, or a letter from the military stating that the taxpayer served in a “tax-free zone” or “Combat Zone Tax Exclusion Area (CZTE)”

 

The taxpayer, the taxpayer’s spouse, or an authorized agent or representative of the taxpayer may submit the notification of eligibility to the Department.  

 

Extension Periods

In general, the additional time period for filing state returns and performing other acts related to the Department is 180 days.

IRS Military Web Page

For further information about federal tax provisions governing military personnel, go to the IRS website at:  www.irs.gov/individuals/military

Nonresident Servicemembers

The Servicemembers Civil Relief Act (SCRA) is a federal law that, among other things, protects servicemembers from losing their home state residency simply by being absent from their home state in compliance with military orders. The SCRA also protects servicemembers from establishing residency simply by being in another state where they are located pursuant to military orders. 

Residency (Iowa Administrative Code rule 701—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.

When is a servicemember an Iowa resident?

A servicemember is an Iowa resident if:

  • the servicemember was a resident of Iowa at the time of enlistment and/or
  • the servicemember has declared Iowa to be his or her “military home of record” and/or
  • the servicemember has taken positive action to establish residency in Iowa 

 

A person remains an Iowa resident until positive action is taken to establish residency in another state.

See Are You a Resident of Iowa for Tax Purposes (tax.iowa.gov/expanded-instructions/are-you-resident-iowa-tax-purposes-2014)

Establishing residency in another state

To establish residency in another state, a servicemember should first complete form DD2058, State of Legal Residence Certificate, which is available from the payroll officer of the Military Office of Personnel. However, completion of this form, 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.

Nonresident Military Income

Beginning with tax year 2003, the following apply for Iowa as a result of the Servicemembers Civil Relief Act: 

Compensation for military service is not considered to be Iowa-source income for nonresident servicemembers. However, nonresident servicemembers who have Iowa income from sources other than compensation for military service may be subject to Iowa income tax.

In general, the Servicemembers Civil Relief Act applies only to active duty members of the Army, Navy, Air Force, Marine Corps, or Coast Guard and to commissioned officers of the Public Health Service or the National Oceanic and Atmospheric Administration who are in active service. Generally, this does not include the National Guard or reserve personnel.

Exceptions exist for nonresident members of the National Guard who are under active duty orders under Section 502(f) of Title 32 of the United States Code and for servicemembers who are absent from duty under specific circumstances.

Servicemembers 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. The nonresident servicemember does not include compensation for military service 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. 

All other income, excluding military pay, is included on the Iowa income tax return (IA 1040) and tax is initially calculated on all income, excluding military pay. Once this is done, the nonresident 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.

Nonresidents and part-year residents must file both the IA 1040 and the IA 126 with a complete copy of the federal return.

Additional information for nonresidents and part-year residents is available at: tax.iowa.gov/expanded-instructions/nonresidents-and-part-year-residents-2016

IRS Military Web Page

For further information about federal provisions that may impact military personnel, go to the IRS website at www.irs.gov/individuals/military

Spouses of Servicemembers

Under the Military Spouses Residency Relief Act of 2009 (MSRRA) and the Veterans Benefits and Transitions Act of 2018 (VBTA), the spouses of servicemembers may be exempt from Iowa income tax on income from services performed in Iowa if they are not residents of Iowa. Servicemembers’ spouses are protected, by federal law, from losing their home state residency simply by being absent from their home state in order to be with the servicemember spouse who is elsewhere in compliance with military orders. Federal law also protects servicemembers’ spouses from establishing residency simply by being in another state where they are located to be with the servicemember spouse pursuant to military orders. Spouses covered by the MSRRA can establish new residency when they take positive action to do so.

Under the MSRRA and Iowa law, a servicemember’s spouse’s income from wages, salaries, tips, etc., may be excluded from Iowa income tax if: 

  • the servicemember spouse is a member of the uniformed services present in Iowa in compliance with his or her orders 
  • the non-servicemember spouse is present in Iowa solely to be with the servicemember spouse, and
  • the non-servicemember spouse is a resident of another state. 

Under the VBTA, a servicemember’s spouse’s income from wages, salaries, tips, etc., may be excluded from Iowa income tax if: 

  • the non-servicemember spouse elects to use the same residence as the servicemember spouse for tax purposes.

Other income, like interest income or rental income, is included in a nonresident spouse’s Iowa income and may be taxed in Iowa. 

Iowa W-4

The IA W-4 includes information related to this federal law. If you claim this exclusion, check the appropriate box on the IA W-4 and enter the state other than Iowa you are claiming as your state of domicile or residence for tax purposes. Attach a copy of your spousal military identification card to the IA W-4 form provided by your employer. 

Filing Iowa Income Tax Returns

Spouses who are eligible for this exclusion on their Iowa income tax return should report all-source income on the IA 1040, but should show no Iowa wages, salaries, tips, or Schedule C income on the IA 126. Enter the amount from line 33, IA 126 on line 48, IA 1040. 

Iowa income tax withheld should be entered on line 63, IA 1040. Then complete the remainder of the IA 1040 to determine the amount of any refund that may be due. 

IRS Military Web Page

For further information about federal tax treatment military personnel and their spouses, go to the IRS website at www.irs.gov/individuals/military