NOTE: The United States Supreme Court decision issued on May 18, 2015, in the Comptroller of the Treasury of Maryland v. Wynne case, impacted many states, including Iowa. For Iowa purposes, the decision requires the out-of-state tax credit to be applied prior to other nonrefundable Iowa tax credits and before calculation of any school district surtax or EMS surtax. Therefore, the out-of-state tax credit calculated on form IA 130 should be entered on line 50 of the IA 1040, rather than on line 57. In addition, a credit can also now be claimed on the IA 130 for income taxes paid to local jurisdictions in other states. For additional details see The Wynne Decision.
All income an Iowa resident earns is taxable to Iowa to the same extent that it is taxable on the federal return even if the income was earned in another state, local jurisdiction in another state, or foreign country. If another state, local jurisdiction in another state, or foreign country taxes that same income, then the Iowa resident may be able to claim a credit on this line. Use form IA 130 to compute the Out-of-State Tax Credit.
- Nonresidents of Iowa cannot claim this credit.
- Part-year residents of Iowa may claim this credit only if the income they earned during that part of the year that they were Iowa residents was also taxed by another state, local jurisdiction in another state, or country.
- The state, local, or foreign income tax imposed on your income is the tax shown on the income tax return you filed with that state, local jurisdiction in another state, or country. It is not the amount that was withheld from your wages.
- An IA 130 form must be figured separately for each state, local jurisdiction in another state, or foreign country. Separate IA 130s are not required for foreign taxes paid by mutual funds or other regulated investment companies.
- The combined total of all credits cannot exceed the Iowa tax liability.
- This credit cannot be claimed for taxes paid on S corporation income passed through to the taxpayer if that income is apportioned through a claim to the S Corporation Apportionment Tax Credit on line 52.
In order to receive the credit, a complete copy of your income tax return(s) filed with the other state(s) must be submitted with your Iowa return, along with a copy of the IA 130. If you are claiming the credit for taxes paid to a foreign country, include a copy of federal form 1116, Foreign Tax Credit if it is required with your federal return.
Special Instructions for Alternative Minimum Tax or Lump-sum Distribution Tax
If you were assessed an alternative minimum tax or a special tax on a lump-sum distribution by another state or items similarly taxed on your Iowa return, you must separately compute an out-of-state credit for each of these items. Do not include alternative minimum tax or a special lump-sum tax when computing the regular tax credit.
Alternative Minimum Tax
Report the amount of preference items taxed by the other state on line 1. However, a preference item may be included in line 1 only if it is also a preference item for Iowa purposes. Divide the amount on line 1 by the total amount of tax preferences taxed by Iowa. Enter this amount on line 2. Enter on line 4 the alternative minimum tax figure from line 41, IA 1040. On line 6, report only the portion of the alternative minimum tax liability from the other state which applies to preference items which were also taxed by Iowa.
Report on line 1 the amount of distribution subject to special lump-sum tax by the other state. Do not include distribution taxed by other state as part of gross income. Utilize the total lump-sum distribution taxed by Iowa to compute the percentage on line 3 and report on line 4 the Iowa Lump-Sum Distribution Tax from line 40, IA 1040.