Iowa Administrative Code › Agency 701 - Revenue Department › Title IV - Individual Income Tax › Chapter 304 - Adjustments to Computed Tax and Tax Credits › Rule 701-304.5 - Nonresident and Part-year Resident Credit

Current through Register Vol. 47, No. 3, July 24, 2024
An individual who is a nonresident of Iowa for the entire tax
				  year, or an individual who is an Iowa resident for a portion of the tax year,
				  is allowed a credit against the individual's Iowa income tax liability for the
				  Iowa income tax on the portion of the individual's income which was earned
				  outside Iowa while the person was a nonresident of Iowa. This credit is
				  computed on Schedule IA 126. The following subrules explain how the credit is
				  computed for taxpayers who are nonresidents of Iowa and taxpayers who are
				  part-year residents of Iowa.
(1)
Credit calculation for nonresidents of Iowa.
a. Prior to the calculation of the
				nonresident credit, a nonresident of Iowa shall compute taxable income in the
				same manner as a full-year Iowa resident. Thus, a nonresident would have the
				same initial Iowa income tax liability as a full-year Iowa resident taxpayer
				with the same taxable income before the nonresident credit is
				computed.
b. The nonresident credit
				is computed by dividing the taxpayer's Iowa source net income by the taxpayer's
				total net income. See 701-Chapter 40 to determine a nonresident's Iowa source
				net income and total net income. This Iowa income percentage is rounded to the
				nearest tenth of a percent (e.g., 1.2 percent) for tax years beginning before
				January 1, 2022, and to the nearest ten-thousandth of a percent (e.g., 1.2345
				percent) for tax years beginning on or after January 1, 2022. The Iowa income
				percentage is then subtracted from 100 percent to arrive at the nonresident
				credit percentage, which represents the percentage of the individual's total
				income which was earned outside Iowa. The nonresident credit percentage is
				multiplied by the net Iowa tax to compute the nonresident credit. For purposes
				of this subrule, "net Iowa tax" means the Iowa regular income tax after
				reduction for the nonrefundable credits provided in Iowa Code section
				422.12.
EXAMPLE 1: A single resident of Nebraska had Iowa source net
				  income of $15,000 in 2022 from wages earned from employment in Iowa. The rest
				  of this person's income was attributable to sources outside Iowa. This
				  nonresident of Iowa had a total net income of $40,000 and a taxable income of
				  $30,000 due to allowable deductions. The Iowa income percentage is computed by
				  dividing the Iowa source net income of $15,000 by the taxpayer's total net
				  income of $40,000, which results in a percentage of 37.5000. This percentage is
				  subtracted from 100 percent, which leaves a nonresident credit percentage of
				  62.5000.
The Iowa tax before reduction for the nonrefundable credits
				  under Iowa Code section
				  422.12 is $1,508. The individual
				  is allowed an exemption credit under Iowa Code section
				  422.12 of $40, which leaves a
				  tax amount of $1,468 ($1,508 - $40). When $1,468 is multiplied by the
				  nonresident credit percentage of 62.5000, a nonresident credit of $918 is
				  computed.
EXAMPLE 2: A California resident, who was married, had
				  $20,000 of Iowa source net income in 2022 from an Iowa farm. This individual
				  had an additional $80,000 in net income that was attributable to sources
				  outside Iowa, but the individual's spouse had no income. The taxpayers had a
				  total net income of $100,000 and a taxable income of $70,000 due to allowable
				  deductions.
The taxpayers had an Iowa income tax liability of $4,583
				  after application of the personal exemption credits of $80 under Iowa Code
				  section 422.12. The taxpayers had an
				  Iowa source net income of $20,000 and a total net income of $100,000.
				  Therefore, the Iowa income percentage was 20.0000. Subtracting the Iowa income
				  percentage of 20 percent from 100 percent leaves a nonresident credit
				  percentage of 80.0000.
When the Iowa income tax liability of $4,583 is multiplied by
				  80 percent, this results in a nonresident credit of $3,666.