Iowa Administrative Code › Agency 701 - Revenue Department › Title IV - Individual Income Tax › Chapter 304 - Adjustments to Computed Tax and Tax Credits › Rule 701-304.13 - Earned Income Credit

Current through Register Vol. 47, No. 3, July 24, 2024
(1)
Tax
				years beginning before January 1, 2007.
Effective for tax years
				beginning on or after January 1, 1990, an individual is allowed an Iowa earned
				income credit equal to a percentage of the earned income credit to which the
				taxpayer is entitled on the taxpayer's federal income tax return as authorized
				in Section 32 of the Internal Revenue Code. The Iowa earned income credit is
				nonrefundable; therefore, the credit may not exceed the remaining income tax
				liability of the taxpayer after the personal exemption credits and the other
				nonrefundable credits are deducted. The percentage of the earned income credit
				for tax years beginning in the 1990 calendar year is 5 percent. The percentage
				of the earned income credit for tax years beginning on or after January 1,
				1991, is 6.5 percent.
For federal income tax purposes, the earned income credit is
				  available for a low-income worker who maintains a household in the United
				  States that is the principal place of abode of the worker and a child or
				  children for more than one-half of the tax year or the worker must have
				  provided a home for the entire tax year for a dependent parent. In addition,
				  the worker must be (1) a married person who files a joint return and is
				  entitled to a dependency exemption for a son or daughter, adopted child or
				  stepchild; (2) a surviving spouse; or (3) an individual who qualifies as a head
				  of household as described in Section 2(b) of the Internal Revenue Code. The
				  federal earned income credit for a taxpayer is determined by computing the
				  taxpayer's earned income on a worksheet provided in the federal income tax
				  return instructions and determining the allowable credit from a table included
				  in the instructions for the 1040 or 1040A. For purposes of the credit, a
				  taxpayer's earned income includes wages, salaries, tips, or other compensation
				  plus net income from self-employment.
In the case of married taxpayers who filed a joint federal
				  return and who elected to file separate state returns or separately on the
				  combined return form, the Iowa earned income credit is allocated between the
				  spouses in the ratio that each spouse's earned income relates to the earned
				  income of both spouses.
Nonresidents and part-year residents of Iowa are allowed the
				  same earned income credits as resident taxpayers.
(2)
Tax years beginning on or after
				January 1, 2007.
Effective for tax years beginning on or after January
				1, 2007, but beginning before January 1, 2013, an individual is allowed an Iowa
				earned income credit equal to 7 percent of the earned income credit to which
				the taxpayer is entitled on the taxpayer's federal income tax return as
				authorized in Section 32 of the Internal Revenue Code. For tax years beginning
				on or after January 1, 2013, but beginning before January 1, 2014, an
				individual is allowed an Iowa earned income tax credit equal to 14 percent of
				the earned income credit to which the taxpayer is entitled on the taxpayer's
				federal income tax return as authorized in Section 32 of the Internal Revenue
				Code. For tax years beginning on or after January 1, 2014, an individual is
				allowed an Iowa earned income tax credit equal to 15 percent of the earned
				income credit to which the taxpayer is entitled on the taxpayer's federal
				income tax return as authorized in Section 32 of the Internal Revenue Code. The
				Iowa earned income credit is refundable; therefore, the credit may exceed the
				remaining income tax liability of the taxpayer after the personal exemption
				credits and other nonrefundable credits are deducted.
In the case of married taxpayers who filed a joint federal
				  return and who elected to file separate state returns or separately on the
				  combined return form, the Iowa earned income credit is allocated between the
				  spouses in the ratio that each spouse's earned income relates to the earned
				  income of both spouses.
Nonresidents or part-year residents of Iowa must determine
				  the Iowa earned income tax credit in the ratio of their Iowa source net income
				  to their total source net income. In addition, if nonresidents or part-year
				  residents of Iowa are married and elect to file separate returns or separately
				  on the combined return form, the Iowa earned income credit must be allocated
				  between the spouses in the ratio of each spouse's Iowa source net income to the
				  combined Iowa source net income.
EXAMPLE: A married couple lives in Omaha, Nebraska. One
				  spouse worked in Iowa in 2007 and had wages and other income from Iowa sources
				  of $12,000. That spouse had a federal adjusted gross income from all sources of
				  $15,000. The other spouse had no Iowa source net income and had a federal
				  adjusted gross income from all sources of $10,000. The taxpayers had a federal
				  earned income credit of $2,800.
The federal earned income credit of $2,800 multiplied by 7
				  percent equals $196. The ratio of Iowa source net income of $12,000 divided by
				  total source net income of $25,000 equals 48 percent. The Iowa earned income
				  tax credit equals $196 multiplied by 48 percent, or $94.
This rule is intended to implement Iowa Code section
				  422.12B as amended by 2013 Iowa
				  Acts, Senate File 295.