You will need to complete the IA 1040 form lines 1 through 47 using income from all sources before you can complete the IA 126.

Nonresidents and part-year residents of Iowa will use the IA 126 to calculate Iowa-source income. NOTE: The Iowa income percentage is rounded to the nearest tenth of a percent in accordance with Iowa Administrative Code rule 701-42.5. The final credit from this form is used as a credit to reduce total tax on your IA 1040.

Enter the amount of credit from line 33, IA 126, on line 48, IA 1040.

IA 126 form and instructions

Part-Year Iowa Residents:

Iowa net income includes all income received while living in Iowa plus any Iowa-source income received while a nonresident.

Part-Year Resident Example: A lived and worked in Iowa the first six months of the tax year. In addition to A's wages, A received interest income from an Iowa bank. A then permanently moved to Missouri, where A was employed for the rest of the year. A continued to receive interest income from the Iowa bank.

A will report all of her income from both states on the IA 1040 as all-source income. On the IA 126, A will report only the wages and interest income earned while an Iowa resident as Iowa-source income. The interest income earned the last half of the year is not considered Iowa-source income since A was no longer an Iowa resident.

Nonresidents:

Iowa net income will include all income from Iowa sources. Complete lines 1 through 26 of the IA 126 using only income from Iowa sources.

Nonresident Example 1: X is a resident of Nebraska and works in Iowa. X's income includes wages earned in Iowa and interest income from a Nebraska bank. X will report the wages and interest on the IA 1040 as all-source income. X will list his wages only on the IA 126 as his Iowa-source income.

Iowa has a reciprocal agreement with Illinois, which means that wages and salaries are taxed by the individual’s state of residence. All income received from gambling in Iowa is taxable to Iowa regardless of the person’s state of residence.

Nonresident Example 2: Y is a resident of Illinois. Y earned $25,000 in wages from Iowa and won $5,000 at an Iowa casino. Y will report income from all sources on the IA 1040. Only the gambling winnings will be reported on the IA 126 as Y's Iowa-source income.

Full-Year Residents (married filers check this box if one spouse is a full-year Iowa resident)

For married taxpayers, if one spouse is a full year Iowa resident, the full year Iowa resident must include all of that spouse’s income from line 1-26 of the IA 1040.

Married Separate Filers:

Divide your Iowa income between spouses using the instructions given for the corresponding line on the IA 1040 for married separate filers.

1. Wages, Salaries, Tips, Etc.

Part-year residents:

Include all W-2 income earned or received while an Iowa resident, even if it was earned in another state, and any income for services performed in Iowa while a nonresident of the state. If it was earned in another state, you may also need to fill out the IA 130 (pdf) if you pay tax to the other state or local jurisdiction in another state. You will need to check with that state for their filing requirements.

Nonresidents:

Report only Iowa-source income. If the portion of employee compensation earned in Iowa by a nonresident is not reported separately, allocate the compensation based upon the number of days worked in Iowa to total work days.

Severance pay and vacation pay from Iowa employment are Iowa-source income even if the pay was received after leaving Iowa.

Note to nonresident military taxpayer:

As a result of federal legislation, the nonresident military taxpayer does not include military pay on line 1 of the IA 126 (nor is it reported on the IA 1040). In general, this applies to active duty military and does not include the National Guard or reserve personnel.

Military spouses, please see Iowa Tax Responsibilities of Servicemembers and Their Spouses

2. Taxable Interest Income

Part-year residents:

Report all interest shown on the IA 1040 that accrued while an Iowa resident and any interest received while a nonresident which was derived from a trade, business, or profession carried on within Iowa. Interest earned from an Iowa bank account is only considered Iowa-source income while the taxpayer is an Iowa resident.

Nonresidents:

Report only the interest derived from an Iowa trade, business, or profession.

3. Dividend Income

Part-year residents:

Report all dividends received while an Iowa resident and any dividends derived from an Iowa trade, business, or profession while a nonresident.

Nonresidents:

Report the dividends derived from an Iowa trade, business, or profession.

4. Alimony Received

Part-year residents:

Report all alimony or separate maintenance payments received while an Iowa resident.

Nonresidents:

Do not enter anything on this line.

5. Business Income or Loss

Part-year residents:

From the total business income or loss shown on line 5 of the IA 1040, report the amount earned while an Iowa resident, and report any portion of the total business income or loss earned while a nonresident using the instructions for nonresidents given below.

Nonresidents:

Report the portion of business income or loss attributable to a trade, business, or profession carried on within Iowa. Include a supporting schedule showing Iowa gross receipts divided by total gross receipts for each business; multiply this ratio times the total net income from the corresponding business. A sale of goods is considered an Iowa sale if goods are delivered or shipped to a point within the state regardless of Freight on Board (F.O.B.) point. A sale of a service is considered an Iowa sale if the recipient of the service receives benefit of the service in Iowa.

6. Capital Gain or (Loss)

Part-year residents:

Include 100% of the capital gain or loss from assets sold while an Iowa resident. In addition, capital gain or loss from assets sold while a nonresident of Iowa should be reported on the basis of the instructions for nonresidents that follow.

Nonresidents:

Include in Iowa income 100% of capital gain or loss from the following:

a. Sales of real or tangible personal property if the property was located in Iowa at the time of the sale; or

b. Sales of intangible personal property if the taxpayer's commercial domicile is in Iowa.

NOTE: You may have a gain here even if you have a net loss on the IA 1040.

7. Other Gains or (Losses)

Part-year residents:

Report 100% of gains or losses from assets sold or exchanged while an Iowa resident and any gains or losses from federal form 4797 while a nonresident if the property was located in Iowa at the time of sale or exchange.

Nonresidents:

Report any gains or losses from federal form 4797 if the property was located in Iowa.

NOTE: You may have a gain here even if you have a net loss on the IA 1040.

8. Taxable IRA Distributions

Part-year residents:

Report any taxable IRA distributions received while an Iowa resident.

Nonresidents:

Do not enter anything on this line.

9. Taxable Pensions and Annuities

Pension income is taxable to the state you live in when you receive it.

Part-year residents:

Report any pension and annuity income reported on line 9 of the IA 1040 which was received while an Iowa resident. Do not include military retirement pay, since that is not reported on line 9 of the IA 1040.

Nonresidents:

Do not enter anything on this line. Retirement income received by a nonresident is not taxable to Iowa even when it is from an Iowa source.

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

Part-year residents:

Report all income shown on federal Schedule E that was earned or received while an Iowa resident. Also report all rents and royalties from Iowa sources and all Iowa partnership or S corporation income earned or received while a nonresident.

Nonresidents:

Report all rents and royalties from Iowa sources and all Iowa partnership or S corporation income. See instructions for allocation of business income on line 5 of this section.

11. Farm Income or (Loss)

Part-year residents:

Report all net farm income earned or received while an Iowa resident. Also report all net income from Iowa farm activities while a nonresident using the instructions for nonresidents given below.

Nonresidents:

Report the total net income from the Iowa farm activities. If farm activities were conducted both within and without Iowa, provide a separate schedule showing allocation of the income and expenses to Iowa.

12. Unemployment Compensation

Part-year residents:

Report all unemployment benefits received while an Iowa resident and those benefits received the rest of the year that relate to past employment in Iowa.

Nonresidents:

Report the unemployment benefits that relate to employment in Iowa. If the unemployment benefits relate to employment in Iowa and employment in another state, report the benefits to Iowa on the basis of the Iowa salaries and wages to the total salary and wages.

13. Gambling Winnings

Part-year residents:

Report any gambling winnings from line 13 of the IA 1040 that were received while an Iowa resident or income from Iowa sources while a nonresident.

Nonresidents:

Report any gambling winnings from line 13 of the IA 1040 that were received from Iowa sources.

14. Other Income

Part-year residents:

Report any income on line 14 of IA 1040 which was received while an Iowa resident or income from Iowa sources while a nonresident. This includes any federal nonconformity adjustments including the depreciation/section 179 adjustment from the IA 4562A. Report the unemployment compensation exclusion as a negative amount in the same ratio as you reported your unemployment compensation on IA 126, line 12.

Nonresidents:

Report all other income from Iowa sources. This includes the Bonus Depreciation and Section 179 Adjustment attributable to Iowa from the IA 4562A. Where this other income or adjustment relates to income allocated to Iowa on another line of this form, include such other income or adjustments in the same ratio as the income to which it relates was allocated to Iowa. Report the unemployment compensation exclusion as a negative amount in the same ratio as you reported your unemployment compensation on IA 126, line 12.

16. Payments to an IRA, Keogh, or SEP

Part-year residents:

Deduct the payments made to an IRA, Keogh, or SEP plan while an Iowa resident.

Nonresidents:

Deduct the payments made to an IRA, Keogh, or SEP plan in the ratio of Iowa earned income to total earned income.

17. Deductible Part of Self-employment Tax

Part-year residents:

Deduct the portion of the self-employment tax that is attributable to the self-employment income earned while an Iowa resident.

Nonresidents:

Deduct the portion of the amount allowed on your federal return in the ratio of your Iowa self-employment income to your total self-employment income.

18. Health Insurance Deduction

Part-year residents:

Self-employed: Enter 100% of the health insurance premiums paid by a self-employed individual while an Iowa resident.

Deducted through wages: Enter 100% of the health insurance premiums that were not withheld from your wages on a pretax basis while an Iowa resident.

Paid direct by taxpayer: Enter 100% of the health insurance premiums that you paid while an Iowa resident.

Excess advance premium tax credit repayment: Enter the amount from the federal 1040, Schedule 2, line 2 multiplied by your 2019 Iowa income percentage. If you filed a 2019 IA 126, your 2019 Iowa income percentage is shown on line 28 of the 2019 IA 126. If you did not file a 2019 IA 126 because you were a resident of Iowa in 2019, your 2019 Iowa income percentage is 100%. If you did not file a 2019 IA 126 because you were a part-year resident or nonresident with no Iowa-source income in 2019, your 2019 Iowa income percentage is 0%.

Nonresidents:

Self-employed: Enter 100% of the health insurance premiums paid by a self-employed individual multiplied by the ratio of Iowa self-employment income to total self-employment income.

Deducted through wages: Enter 100% of the health insurance premiums that were not withheld from your wages on a pretax basis multiplied by the ratio of Iowa wages to total wages.

Paid direct by taxpayer: Multiply the health insurance premiums that you paid by the ratio of your Iowa-source net income on line 26 of the IA 126 to total net income on line 26 of the IA 1040. For this net income calculation, do not include line 18, the health insurance deduction in the above-referenced net income amounts.

Excess advance premium tax credit repayment: Enter the amount from the federal 1040, Schedule 2, line 2 multiplied by your 2020 Iowa income percentage. If you filed a 2020 IA 126, your 2020 Iowa income percentage is shown on line 28 of the 2020 IA 126. If you did not file a 2020 IA 126 because you were a resident of Iowa in 2020, your 2020 Iowa income percentage is 100%. If you did not file a 2020 IA 126 because you were a part-year resident or nonresident with no Iowa-source income in 2020, your 2020 Iowa income percentage is 0%.

19. Penalty on Early Withdrawal of Savings

Part-year residents:

Deduct the amount of any penalty you were charged because you withdrew funds from your time savings deposit before its maturity while an Iowa resident. Also report any penalty you were charged while a nonresident using the instructions for nonresidents given below.

Nonresidents:

Deduct the amount of any penalty you were charged because you withdrew funds from your time savings deposit, derived from an Iowa trade, business, or profession. before its maturity.

20. Alimony Paid

Part-year residents:

Deduct alimony paid while an Iowa resident.

Nonresidents:

Deduct alimony paid in the ratio of Iowa gross income to total gross income.

21. Pension / Retirement Income Exclusion

Part-year residents:

If you qualify for this exclusion on the IA 1040, you may exclude the amount of taxable retirement income from line 21, IA 1040 which was received while an Iowa resident, up to a maximum of $6,000 (if filing status 1, 5, or 6) or $12,000 (if filing status 2, 3, or 4).

Nonresidents:

Iowa-source retirement income received by a nonresident is not taxable to Iowa. Therefore, you do not qualify to take this exclusion. Do not enter anything on this line.

22. Moving Expenses

Part-year residents who moved into Iowa:

Part-year residents who moved into Iowa can enter any moving expenses from line 22, IA 1040 that relate to the move to Iowa.

Part-year residents moving out of Iowa:

Part-year residents moving out of Iowa cannot take any deduction on this line.

Nonresidents:

Do not enter anything on this line.

23. Iowa Capital Gain Deduction for certain business/farm assets/ESOP stock ONLY

Enter 100% of qualifying capital gains deduction that are attributable to Iowa sources. See form IA 100 for instructions.

24. Other Adjustments

Deduct miscellaneous adjustments to income in the same ratio as the income to which the adjustment relates was allocated to Iowa.

26. Iowa Net Income

Subtract line 25 from line 15 and enter the difference on this line. If line 26 is $1,000 or more or you are subject to Iowa lump-sum or alternative minimum tax, complete lines 27 through 33. If line 26 is less than $1,000 and you are not subject to Iowa lump sum or alternative minimum tax, you are not required to file an Iowa income tax return. Married taxpayers must combine their Iowa income amounts for purposes of the $1,000 filing threshold. However, if you had Iowa tax withheld and are requesting a refund, or if you choose to file an Iowa return even if you are not required to do so, enter 100% on line 29, complete the remainder of the schedule, and enter the credit amount on line 48, IA 1040.

32. Tax After Credits

Instead of subtracting line 31 from line 30, single taxpayers (filing status 1) who used the Tax Reduction Worksheet to calculate the amount on line 47, IA 1040, should enter the amount from line 47, IA 1040 on line 32, IA 126.