Iowa Administrative Code › Agency 701 - Revenue Department › Title I - Administration › Chapter 40 - Determination of Net Income › Rule 701-40.23 - Social Security Benefits

Current through Register Vol. 47, No. 3, July 24, 2024
For tax years beginning on or after January 1, 1984, but
				  before January 1, 2014, social security benefits received are taxable on the
				  Iowa return. Although Tier 1 railroad retirement benefits were taxed similarly
				  as social security benefits for federal income tax purposes beginning on or
				  after January 1,1984, these benefits are not subject to Iowa income tax. 45
				  U.S.C. Section 231m prohibits taxation of railroad retirement benefits by the
				  states.
The following subrules specify how social security benefits
				  are taxed for Iowa individual income tax purposes for tax years beginning on or
				  after January 1, 1984, but prior to January 1, 1994; for tax years beginning on
				  or after January 1, 1994, but prior to January 1, 2007; and for tax years
				  beginning on or after January 1, 2007, but prior to January 1, 2014:
(1)
Taxation of social security
				benefits for tax years beginning on or after January 1, 1984, but prior to
				January 1, 1994.
For tax years beginning on or after January 1, 1984,
				but prior to January 1, 1994, social security benefits are taxable on the Iowa
				return to the same extent as the benefits are taxable for federal income tax
				purposes. When both spouses of a married couple receive social security
				benefits and file a joint federal income tax return but separate returns or
				separately on the combined return form, the taxable portion of the benefits
				must be allocated between the spouses. The following formula should be used to
				compute the amount of social security benefits to be reported by each spouse on
				the Iowa return:
Click here
				  to view Image
The example shown below illustrates how taxable social
				  security benefits are allocated between spouses:
A married couple filed a joint federal income tax return for
				  1984. They filed separately on the combined return form for Iowa income tax
				  purposes. During the tax year the husband received $6,000 in social security
				  benefits and the wife received $3,000 in social security benefits. $2,000 of
				  the social security benefits was taxable on the federal return.
The $2,000 in taxable social security benefits is allocated
				  to the spouses on the following basis:
Click here
				  to view Image
In situations where taxpayers have received both social
				  security benefits and Tier 1 railroad retirement benefits and are taxable on a
				  portion of those benefits, the formula which follows should be used to
				  determine the social security benefits to be included in net income:
Click here
				  to view Image
(2)
Taxation of social security
				benefits for tax years beginning on or after January I, 1994, but prior to
				January 1, 200 7.
For tax years beginning on or after January 1, 1994,
				but prior to January 1, 2007, although up to 85 percent of social security
				benefits received may be taxable for federal income tax purposes, no more than
				50 percent of social security benefits will be taxable for state individual
				income tax purposes. Thus, in the case of Iowa income tax returns for 1994
				through 2006, social security benefits will be taxed as the benefits were taxed
				from 1984 through 1993 as described in subrule 40.23(1).
The amount of social security benefits that is subject to tax
				  is the lesser of one-half of the annual benefits received in the tax year or
				  one-half of the taxpayer's provisional income over a specified base amount. The
				  provisional income is the taxpayer's modified adjusted gross income plus
				  one-half of the social security benefits and one-half of the railroad
				  retirement benefits received. Although railroad benefits are not taxable,
				  one-half of the railroad retirement benefits received may be used to determine
				  the amount of social security benefits that is taxable for state income tax
				  purposes. Modified adjusted gross income is the taxpayer's federal adjusted
				  gross income, plus interest that is tax-exempt on the federal return, plus any
				  of the following incomes:
1. Savings
				bond proceeds used to pay expenses of higher education excluded from income
				under Section 135 of the Internal Revenue Code.
2. Foreign source income excluded from income
				under Section 911 of the Internal Revenue Code.
3. income from Guam, American Samoa, and the
				Northern Mariana Islands excluded under section 931 of the Internal Revenue
				Code.
4. income from Puerto Rico
				excluded under Section 933 of the Internal Revenue Code.
A taxpayer's base amount is:
(a) $32,000 if married and a joint federal
				return was filed,
(b) $0 if married
				and separate federal returns were filed by the spouses and
(c) $25,000 for individuals who filed federal
				returns and used a filing status other than noted in
(a)
and
(b).
The lA 1040 booklet and instructions for 1994 through 2006
				  will include a worksheet to compute the amount of social security benefits that
				  is taxable for Iowa income tax purposes. An example of the social security
				  worksheet follows. Similar worksheets will be used for computing the amount of
				  social security benefits that is taxable for years 1995 through 2006. An
				  example of the social security worksheet follows:
1. Enter amount(s) from box 5 of all of
				Form(s) SSA-1099. If a joint return was filed, enter totals from box 5 of
				Form(s) SSA-1099 for both spouses. Do not include railroad retirement benefits
				from RRB-1099 here. See line 3.
1_________________
2. Divide line 1 amount above by 2.
2_________________
*
				3. Add amounts of the following incomes from Form
				1040: wages, taxable interest income, dividend income, taxable state and local
				income tax refunds, alimony, business income or loss, capital gain or loss,
				capital gain distributions, other gains, taxable IRA distributions, taxable
				pensions and annuities, incomes from Schedule E, farm income or loss,
				unemployment compensation, other income and 1/2 of railroad retirement benefits
				from RRB 1099.
3.________________
4. Enter amount from Form 1040, line 8b for
				interest that is
federally tax-exempt.
4.________________
5. Add lines 2, 3 and 4.
5_________________
6. Enter total adjustment to income from Form
				1040.
6_________________
7. Subtract line 6 from line 5.
7_________________
8. Enter on line 8 one of the following
				amounts based on the filing status used on Form 1040: Single, Head of
				Household, or Qualifying Widow(er), enter $25,000. Married filing jointly,
				enter $32,000. Married filing separately, enter $0 ($25,000 if you did not live
				with spouse any time in 1994).
8_________________
9. Subtract line 8 from line 7. If zero or
				less enter 0. If line 9 is zero, none of the social security benefits are
				taxable. If line 9 is more than zero, go to line 10.
9.________________
10. Divide line 9 amount above by 2.
10________________
11. Taxable social security benefits enter
				smaller of line 2 or line 10 here and on line 14 lA 1040.
11________________
*If applicable, include on line 3 the following incomes
				  excluded from federal adjusted gross income: foreign earned income, income
				  excluded by residents of Puerto Rico, American Samoa, and Guam and proceeds
				  from savings bonds used for higher education.
Married taxpayers who filed a joint federal return and are
				  filing separate Iowa returns or separately on the combined return form can
				  allocate taxable social security benefits between them with the following
				  formula.
T axable Social Security Benefits and Railroad Retirement
				  Benefits on Federal Return X T otal Social Security Benefit Received/Total
				  Social Security Benefits and Railroad Retirement Benefits Received