Iowa Administrative Code › Agency 701 - Revenue Department › Title IV - Individual Income Tax › Chapter 300 - Administration › Rule 701-300.13 - Reciprocal Tax Agreements

Current through Register Vol. 47, No. 3, July 24, 2024
Effective for tax years beginning on or after January 1,
				  2002, the department of revenue may, when the action has been approved by the
				  general assembly and the governor, and when it is cost-efficient,
				  administratively feasible, and of mutual benefit to Iowa and another state,
				  enter into a reciprocal tax agreement with a tax administration agency of the
				  other state. Under this agreement, income earned from personal services in Iowa
				  by residents of the other state will be exempt from Iowa income tax if the
				  other state provides an identical exemption from its state income tax for
				  income earned in the other state from personal services by Iowa residents. For
				  purposes of this rule, "income earned from personal services" includes wages,
				  salaries, commissions, tips, deferred compensation, pensions, and annuities
				  which were earned from personal services in Iowa by a resident of another state
				  that had a reciprocal tax agreement with Iowa at the time the wages, salaries,
				  commissions, tips, deferred compensation, pensions, or annuities were earned.
				  See rule 701-302.45 (422) for the
				  treatment of deferred compensation, pensions, or annuities received by a
				  nonresident of Iowa related to the documented retirement of a participant in a
				  deferred compensation plan, a pensioner or an annuitant. The provisions of rule
				  701-302.45 (422) supersede the
				  definition of "income earned from personal services" under any reciprocal
				  agreement as it relates to deferred compensation, pensions, or
				  annuities.
(1)
Reciprocal tax
				agreement with Illinois.
Pursuant to the authority of Iowa Code
				subsection 422.8(5), the
				department of revenue entered into a reciprocal tax agreement with tax
				administration officials of Illinois in November 1972 which went into effect
				for taxable years which began after December 31, 1972. The Iowa-Illinois
				reciprocal tax agreement cannot be terminated by the Iowa department of revenue
				unless the termination is authorized by a constitutional majority of each house
				of the general assembly and is approved by the governor. The Iowa-Illinois
				reciprocal tax agreement includes the following terms:
a. No Illinois or Iowa employer is required
				to withhold Illinois income tax from compensation paid to an Iowa resident for
				personal services in Illinois.
b.
				No Illinois or Iowa employer is required to withhold Iowa income tax from
				compensation paid to an Illinois resident for personal services in
				Iowa.
c. Every Iowa employer who is
				subject to the jurisdiction of Illinois is liable to the state of Illinois for
				withholding of Illinois income tax from compensation paid to Illinois
				residents.
d. Every Illinois
				employer who is subject to the jurisdiction of Iowa is liable to the state of
				Iowa for the withholding of Iowa income tax from compensation paid to Iowa
				residents.
e. The Illinois
				department of revenue will encourage Illinois employers who are not subject to
				the jurisdiction of Iowa to withhold and remit Iowa income tax from wages paid
				to Iowa residents employed in Illinois.
f. The Iowa department of revenue will
				encourage Iowa employers who are not subject to the jurisdiction of Illinois to
				withhold and remit Illinois income tax from compensation paid to Illinois
				residents from employment in Iowa.
g. For purposes of the agreement,
				"compensation" means wages, salaries, commissions, tips, deferred compensation,
				pensions, and annuities and any other remuneration paid for personal services.
				In the case of deferred compensation, pensions, and annuities, those incomes
				are deemed to have been earned at the time of employment. Therefore, if an
				Illinois resident receives a pension or annuity from employment in Iowa at the
				time the reciprocal agreement was in effect, the pension or annuity income is
				not taxable to Iowa since it is "compensation" covered by the reciprocal
				agreement. See rule 701-302.45 (422) for the
				treatment of deferred compensation, pensions, or annuities received by an
				Illinois resident related to the documented retirement of a participant in a
				deferred compensation plan, a pensioner or an annuitant. The provisions of rule
				701-302.45 (422) supersede the
				definition of "compensation" under the reciprocal agreement with Illinois.
				"Compensation" does not include unemployment compensation benefits which an
				Illinois resident receives due to employment in Iowa.
h. No Iowa resident is required to pay
				Illinois income tax or file an Illinois return from compensation paid from
				personal services in Illinois.
i.
				No Illinois resident is required to pay Iowa income tax or to file an Iowa
				return on compensation for personal services in Iowa.
j. For purposes of the agreement, the term
				"Iowa resident" means an individual who is a resident under the laws of the
				state of Iowa, and the term "Illinois resident" means an individual who is a
				resident as defined in the Illinois Income Tax Act.