New Federal legislation affects how nonresident military will file Iowa income tax returns.

For Iowa, the nonresident military taxpayer will not include military pay on line 1 of the IA1040 and also not report it as Iowa income on the IA126. The net result is a reduction of the tax rate on any other Iowa source income.

In general, this applies only to active duty military and does not include the National Guard or reserve personnel.

Exceptions may exist if nonresident military are under active duty orders under a specific federal section -- (502(f) of Title 32 of the United States Code.

The change takes place for 2003 returns filed in 2004.

Additional Resource: A report by the Federation of Tax Administrators