Iowa Administrative Code › Agency 701 - Revenue Department › Title IV - Individual Income Tax › Chapter 301 - Filing Return and Payment of Tax › Rule 701-301.9 - Special Tax Computation for All Low-income Taxpayers Except Single Taxpayers

Current through Register Vol. 47, No. 3, July 24, 2024
For tax years beginning on or after January 1, 1987, a
				  special tax computation is available for determining the state income tax
				  liability for all low-income taxpayers except single taxpayers described in
				  subrule 39.4(1). Under this provision, the taxpayer multiplies the net income
				  for the tax year in excess of $13,500 for tax years beginning on or after
				  January 1, 1993, by the maximum individual income tax rate. The tax amount
				  computed by this procedure is then compared to the tax amount on the
				  individual's taxable income from the tax tables or the tax-rate schedule. The
				  taxpayer is subject to the lesser of the two tax amounts. In the case of
				  married taxpayers electing to file separate returns or separately on the
				  combined return form, the incomes of both spouses must be considered for
				  purposes of determining the tax liability from the special tax computation. For
				  purposes of this rule, the partial exclusion of pension and other retirement
				  benefits described in rule
				  701-40.47 (422) and the
				  phase-out exclusion for social security benefits described in 701-subrule
				  40.23(3) must be included in the net income amounts when determining the tax
				  liability from the special tax computation. The tax liability calculated from
				  the special tax computation is allocated between the spouses in the ratio of
				  each spouse's net income to the combined net income of both spouses. In
				  determining the special tax computation for taxpayers who are 65 years of age
				  or older for tax years beginning on or after January 1, 2007, see rule
				  701-39.15 (422).
For example, a married couple's net income in 1987 was
				  $8,200. The taxpayers elected to file separately on the combined return form
				  for 1987. One spouse had a net income of $6,000, the second spouse had a net
				  income of $2,200. There was no federal income tax withheld on the wages earned
				  by either of the taxpayers. The spouse with the net income of $6,000 had a
				  regular income tax liability of $105. The spouse with the net income of $2,200
				  had a regular income tax liability of $4. The special tax computation of these
				  taxpayers is shown below:
Taxpayers' combined net income
$8,200
($6,000 + $2,200)
Less:
Income not subject to special tax
7,500
Income subject to special tax
700
x 9.98
%
Special tax liability for 1987
$ 70
The taxpayers' special tax liability for 1987 was $70. The
				  special tax is imposed since it is less than the taxpayers' regular tax
				  liability of $109. This special tax liability is allocated to each spouse on
				  the following basis:
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The special tax computation for low-income taxpayers is not
				  available to married taxpayers filing separate state returns or to married
				  taxpayers filing separately on the combined return form in instances where one
				  of the spouses has a net operating loss described in Iowa Code section
				  422.9, subsection 3, and the
				  spouse elects to carry back or carry forward the net operating loss. Also, the
				  special tax computation for low-income taxpayers is not available if the
				  taxpayer is required to annualize the taxpayer's income as described in rule
				  701-41.9 (422).
This rule is intended to implement Iowa Code section
				  422.5.