Out-of-State Tax Credit

Line
50
Step
9
Step Subject
Tax, Credits & Checkoff Contributions
Instruction Year
2022

For additional information on the Iowa out-of-state tax credit, see Iowa Administrative Code rules 701—304.6 and 701—304.7.

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. Individuals using filing status 3 (married filing separately on a combined return) or status 4 (married filing separate returns) must complete a separate IA 130 for the spouse 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.

Alternative Minimum Tax or Lump-Sum Distribution Tax

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

Line Instructions for IA 130

Line 1: Enter the income you earned while an Iowa resident that was taxed by Iowa and taxed by the other state, local jurisdiction outside of Iowa, or foreign country. Do not include income that was not taxed by Iowa. Do not include amounts taxed by another state, local jurisdiction outside of Iowa, or foreign country if that tax is not measured by income. Do not include fees, penalty, and interest paid in connection with the income tax.

If you were subject to income tax in the other jurisdiction, this income will be included on the income tax return you filed with that jurisdiction. Include a copy of that other income tax return with your IA 1040.

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 outside of Iowa, 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 will be identified on a schedule provided to you by your pass-through entity. If you do not receive such a schedule from your pass-through entity, 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.

If your income was taxed in other jurisdictions at more than one level (e.g. at the pass-through entity level and at the individual level) only include that income once on this line.

Caution: Do not include on this line any income from 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.

Line 2: If you are a full-year resident, enter your gross income from your IA 1040, line 15, for the same tax year you are claiming this credit. If you are a part-year resident, enter your gross income from your IA 126, line 15, for the same tax year you are claiming this credit.

Line 3: Round your percentage on line 3 to the nearest ten-thousandth of a percent, i.e. four digits to the right of the decimal place, as a percentage (e.g. 12.3456%). If the fifth digit to the right of the decimal place is 1-4, round down (e.g. 12.34564% becomes 12.3456%). If the fifth digit to the right of the decimal place is 5-9, round up (e.g. 12.34565% becomes 12.3457%). Do not exceed 100%.

Line 4: Enter your Iowa regular income tax, equal to the amount on your IA 1040, line 49, less your Iowa lump-sum tax on your IA 1040, line 40, and less your Iowa alternative minimum tax on your IA 1040, line 41. If zero or less, enter zero.

Line 6: 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 7 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.

Line 7: 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 outside of Iowa, 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, 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 line 6 of the IA 130, and must also reduce their pro-rata share of the entity-level income tax paid by partnership P by $50 as reported on line 7. B enters $200 ($250 - $50) on line 7.

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.

Line 10: Enter the total income taxed by the other state, local jurisdiction outside of Iowa or foreign county. Do not include amounts taxed by another state, local jurisdiction outside of Iowa, or foreign country if that tax is not measured by income. Do not include fees, penalty, and interest paid in connection with the income tax.

Line 11: Round your percentage on line 11 to the nearest ten-thousandth of a percent, i.e. four digits to the right of the decimal place, as a percentage (e.g. 12.3456%). If the fifth digit to the right of the decimal place is 1-4, round down (e.g. 10.41864% becomes 10.4186%). If the fifth digit to the right of the decimal place is 5-9, round up (e.g. 10.43545% becomes 10.4355%). Do not exceed 100%.

Special Instructions for Minimum Tax or Lump-Sum Distribution Tax

Compute Separately: If you were assessed an alternative minimum tax or 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 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. Please write “Alternative Minimum Tax” or “Lump-sum Tax” next to the amount on line 6 of the IA 130.

Minimum Tax: Report the amount of preference items taxed by the other state or local jurisdiction outside of Iowa on line 1. However, a preference item may be included in line 1 only if it is also a preference item for Iowa purposes. Enter on line 2 the amount of Iowa preference items. Report on line 4 the alternative minimum tax figure from IA 1040, line 41. On line 6 or 7, as appropriate, report only the portion of the alternative minimum tax liability from the other state or local jurisdiction outside of Iowa which applies to preference items which were also taxed by Iowa.

Lump-sum Distribution: Report on line 1 the amount of distribution subject to special lump-sum tax by the other state. Do not include a distribution taxed by the other state or local jurisdiction outside of Iowa as part of gross income. Enter on line 2 the total lump-sum distribution taxed by Iowa. Report on line 4 the Iowa Lump-sum Distribution Tax from IA 1040, line 40.

Example 1: Full-Year Iowa Residents Only

Taxpayer X lived in Iowa all year but worked in both Iowa and Nebraska. X earned $10,000 in Iowa. X also earned $15,000 in Nebraska that was taxed by Nebraska. Taxpayer X would report $25,000 on line 15 of the IA 1040 as gross income. IA 1040, line 49 would be $903. On the Nebraska state return the tax imposed* on that income was $450.

1. Amount of gross income earned while an Iowa resident that was taxed by Iowa and taxed by the other state, local jurisdiction outside of Iowa, or foreign country. $15,000
2. Gross taxable income for residents from IA 1040, line 15. $25,000
3. Divide line 1 by line 2 and enter the percentage (not to exceed 100.0%) 60.0000%
4. Tax from IA 1040, line 49 (less lump sum tax and minimum tax) $903
5. Multiply line 4 by percentage on line 3 $542
6. Enter the tax imposed* by the other state, local jurisdiction outside of Iowa, or foreign country, and paid by you $450
7. Enter the income tax imposed** by the other state, local jurisdiction, or foreign country, and paid by your pass-through entity or mutual fund $0
8. Enter the sum of lines 6 and 7 $450
9. Enter the small of lines 5 or 8. This is your out-of-state tax credit. Enter this amount on IA 1040, line 50 $450

*“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

Taxpayer Y lived in Iowa until the end of June. On July 1, Y moved to Missouri. Y worked all year in the state of Missouri. Y earned a salary of $30,000 for the year, $15,000 while residing in Iowa and $15,000 while residing in Missouri. Y also earned $10,000 farm rental income from farmland located in Iowa. IA 1040, line 49 would be $1,094. On the Missouri state return, the tax imposed* on that income was $1,000.

1. Amount of gross income earned while an Iowa resident that was taxed by Iowa and taxed by the other state, local jurisdiction outside of Iowa, or foreign country. $15,000
2. Gross taxable income for part-year residents from IA 126, line 15 $25,000
3. Divide line 1 by line 2 and enter the percentage (not to exceed 100.0%) 60.0000%
4. Tax from IA 1040, line 49 (less lump sum tax and minimum tax) $1,094
5. Multiply line 4 by percentage on line 3 $656
6. Enter the tax imposed* by the other state, local jurisdiction outside of Iowa, or foreign country and paid by you $1,000
7. Enter the tax imposed** by the other state, local jurisdiction outside of Iowa, or foreign country and paid by your pass-through entity or mutual fund $0
8. Enter the sum of lines 6 and 7 $1,000
9. N/A  
10. Enter the total amount of gross income taxed by the other state/, local jurisdiction, or foreign country. $30,000
11. Divide line 1 by line 10 and enter the percentage (not to exceed 100.0%) 50.0000%
12. Multiply line 8 by the percentage on line 11. $500
13. Enter the smaller of line 5 or 12. This is your out-of-state tax credit. Enter this amount on IA 1040, line 57. $500

*“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.

 

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