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13736: IA - Out-of-State Tax Credit Changes


Iowa

Iowa has changed how out-of-state tax credits are applied for Iowa residents, to conform to the Wynne Decision issued by the Supreme Court. The Iowa 1040X also has been changed to conform.


Amended Iowa returns must be filed within the normal three (3) year statute of limitations. 

Background

A description of the changed application of out-of-state tax credits is available on the Iowa Dept. of Revenue website at The Wynne Decision.

Briefly, a US Supreme Court decision (Comptroller of the Treasury of Maryland v. Wynne, 135 S.Ct. 1787 (May 18, 2015)) determined that, where a state income tax and a county income tax both apply to a state resident, the state must apply out-of-state tax credit to both. Formerly, Maryland's practice was to limit the credit to the Maryland state tax liability and not apply it to the county tax liability.

Iowa previously applied out-of-state tax credit in a similar manner to Maryland. Out-of-state tax credit was applied to Iowa state tax liability after calculation of school district and emergency medical services surcharges that are based on that liability. In conformity with the Wynne decision, the out-of-state tax credit calculated on form IA 130 now must be applied prior to other nonrefundable Iowa tax credits and before calculation of any school district surtax or EMS surtax.


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