Message from the Director:

I am completing five years as Director and will be moving on to a new and exciting challenge. I have enjoyed my time as Director and appreciate having the opportunity to serve Iowans. The new Director appointed by Governor-elect Branstad is Courtney Kay-Decker, an attorney from Davenport. Courtney and I have had an opportunity to discuss the transition and we share the same goal of being a helpful service organization to Iowa taxpayers.

The New Year is bringing further reductions in our staffing levels. This will impact paper return tax filers to a greater extent. We are sorry for the inconvenience but the budget reductions have made these reductions necessary. Electronic filing will speed up your processing. Anything you can do to increase the number of electronic filings will be greatly appreciated.

Listed below are common income tax efiling errors. If we can correct these errors prior to filing, you will have less work and we will have less work.

Most common “e” income tax filing errors:

• Complete the county and school district information in Step 1.    
• Make sure the estimated payments claimed on the return match what was paid.
• Do not mail a paper copy of the return after submitting your return electronically.
• The Taxpayer must sign the return.
   
     
  Please efile and thanks for your help in filing correctly.
  

Mark R. Schuling
Director

Individual Income Tax Update

Expanded Instructions - Our 2010 Expanded Instructions are now online; please see our individual income tax forms page. Be sure to read What's New.

Electronic Filing - Electronic filing begins January 14, 2011. We will have a link to eFile choices on our home page. Some taxpayers will qualify to file both the federal and Iowa returns free.

We enter the tax season with continued reduced staffing levels due to budget constraints. We apologize for the inconvenience and understand the impact on paper return filers. Electronic filing and payment will speed up processing. Anything you can do to increase the number of electronic filings will be greatly appreciated.

Coupling with Federal Tax Provisions - The Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 passed by Congress in December 2010 contains a number of tax provisions that will be allowed for federal tax purposes for the 2010 tax year. At this time, Iowa is not coupled with these tax provisions that affect the computation of Iowa adjusted gross income. The Iowa legislature during its upcoming 2011 session will make a determination on whether these federal tax provisions will be allowed on the Iowa return for 2010.

Value of Health Care Coverage for Nonqualified Dependents - The federal health care bill passed by Congress in 2010 provided for health care coverage for nonqualified tax dependents through age 26. This federal legislation also provided that the value of this health care coverage is not subject to federal income tax.

Prior to the passage of the federal legislation, Iowa provided for health care coverage for nonqualified dependents through age 24. In addition, Iowa Code §422.7(29A) provided that the value of health care coverage for a nonqualified dependent was not subject to Iowa income tax. A deduction could be claimed on the Iowa income tax return for the value of this coverage that was included in federal income.

The Department has determined that Iowa Code §422.7(29A) provides that the value of health care coverage provided for a nonqualified dependent ages 25 and 26 is not subject to Iowa income tax. This will result in the same treatment of health care coverage for nonqualified dependents for both federal and Iowa income tax purposes.

End-of-Year Reminders to Withholding Filers

With the end of the year approaching, you will want to file your Iowa Verified Summary of Payments Report (VSP) through eFile & Pay. The VSP must be filed by February 28, 2011.

Iowa does not require you to send in copies of the W-2s or 1099s. Employers are, however, required to keep copies for four years.

The federal government requires employers to provide W-2s and 1099s to employees no later than January 31, 2011, for tax year 2010. W-2s and 1099s are federal forms and can be obtained through the IRS Web site, or by calling the IRS at 1-800-829-3676, or by purchasing them through an office supply company.

The Iowa withholding tax tables will NOT change for 2011. Please continue to use the current tables, which became effective April 1, 2006.

The Iowa W-4 for 2011 (pdf) is now online.

Iowa Withholding Issues

Nonresident wages and salaries

Employers doing business in Iowa are required to withhold Iowa individual income tax from the wages and salaries of nonresident employees working in Iowa at the same rate as for residents. Employers should register online to become an Iowa Withholding Agent.

Exception: See Iowa-Illinois reciprocal agreement below.

Other nonresident income

The payer or withholding agent may withhold on a one-time basis. The payer should complete a paper Iowa Business Tax Registration form (78-005) stating this to be a one-time report. The withholding payment may be sent in with the completed application to the address on the application form.

The following additional types of income to nonresidents are subject to Iowa withholding:

• Compensation paid to entertainers performing in Iowa, but not payments to entertainment corporations. However, wages of nonresidents engaged in film production or television production are not subject to Iowa withholding tax if the withholding agent provides certain information to the Department, which includes each nonresident employee's name, permanent address, Social Security Number, and estimated amounts the employee is to be paid.
• Rental payments received from Iowa property.
• Taxable Iowa-source income paid to a beneficiary of an Iowa estate or trust.
• Iowa-source income received by a nonresident partner or shareholder of a partnership or S corporation doing business in Iowa.
• Income derived from any business of a temporary nature such as contracts for construction or fees paid for services in Iowa.

Under provisions of federal law, Iowa tax should not be withheld from nonresidents working in Iowa as employees of railroads and trucking firms in interstate commerce if they are working in at least one other state. Withholding may be required for the employee's state of residence or the nonresident employee may be required to make estimated payments to their state of residence.

Iowa residents working in other states

In the same way nonresidents of Iowa may be subject to Iowa income tax withholding when that income is earned in Iowa, others states may require their tax to be withheld from Iowa residents working there. The requirements may differ from one state to another, so an inquiry may need to be made of that state(s) if an Iowa resident is working in a state other than Iowa.

Iowa-Illinois reciprocal agreement

Iowa and Illinois have a reciprocal agreement for individual income tax purposes. At this time, Iowa does not have an income tax reciprocal agreement with any other state.

Any wages or salary made by an Iowa resident working in Illinois is taxable only to Iowa and not to Illinois. Any wages or salary made by an Illinois resident working in Iowa is taxable only to Illinois and not to Iowa.

An Iowa resident working for wages or salary in Illinois should complete and file Illinois form IL-W-5-NR “Employee's Statement of Nonresidence in Illinois” with the employer so that the employer will be aware it is appropriate to withhold Iowa income tax. The Iowa resident should also complete an Iowa W-4.

An Illinois resident working for wages or salary in Iowa should complete and file the IA 44-016 (pdf) “Employee's Statement of Nonresidence in Iowa” with the employer so that the employer will be aware it is appropriate to withhold Illinois income tax.

Iowa will tax any Iowa-source income received by an Illinois resident that is not from wages or salaries. Illinois will tax any Illinois-source income received by an Iowa resident that is not from wages or salaries. Examples of income that are not wages and salaries and, therefore, not covered under the Iowa-Illinois Reciprocal Agreement are Iowa gambling winnings and unemployment compensation for employment in Iowa.

Local Option Sales Taxes - New Jurisdictions

On January 1, 2011, businesses in new local option jurisdictions and businesses delivering into these jurisdictions will begin collecting local option sales tax on their taxable sales.  

Sales Tax on Photography

For Iowa sales tax purposes, photography is treated as the sale of a product, not as a service.  Therefore, sales tax is due on the full sale price of that product.  The full sale price includes all charges necessary to obtain the finished photograph.  So items such as sitting fees would be taxable as part of the sale price, even if separately itemized.    

Since it is treated as the sale of a product, photography is taxed based upon where delivery of the photograph occurs.  That may or may not be where the photograph is taken.  

Snow Removal

Snow removal is not subject to Iowa sales tax.

The service of applying sand, salt, or ice-melt is likewise not taxable.

However, the materials applied – sand, salt, ice-melt – are taxable products. Sales tax is due on these materials.

• When the snow removal business applies these materials for their customer and does not make a separately itemized charge for them, that business is the consumer of the materials and owes sales tax to their supplier when they are purchased. No tax is charged to the snow removal business’ customer for services or materials.
• In some cases, the snow removal business may separately itemize charges to their customer for the materials. If so, the business may be able to purchase the materials for resale and not pay sales tax to their supplier when three conditions are met.

1. They and their customer must agree that the product is being sold separately from the service, and

2. The product must be sold to the customer in a definite form or amount and with a specific price attached, and

3. The cost of the product must be itemized on the bill.

When purchasing products for resale, a valid Sales Tax Exemption Certificate (pdf) will be provided by the snow removal business to the supplier who sells them the materials. In this situation, the snow removal business must charge sales tax to their customer on the materials, but not on the services.

Rent Reimbursement Claim Forms

The 2010 Rent Reimbursement Claims will be mailed during the first week of January to those individuals who filed a 2009 form.  The forms sent in this mass mailing will be pre-printed with the claimant's name, address and other important information.  It is to the claimant's benefit to use the pre-printed form whenever possible as the information contained on it speeds processing.

Blank 2010 Rent Reimbursement Claims (not pre-printed) will be available on our Web site January 14.  On that date, they will also be available at the Taxpayer Services office located on the fourth floor of the Hoover State Office Building in Des Moines.  

The Rent Reimbursement program is available to Iowa residents whose total household income is less than $20,741 and one of the following applies:

• 65 years of age or older by December 31, 2010, or

• Totally disabled and 18 years of age or older by December 31, 2010.

In addition, the individual must be renting housing in a building subject to property tax.

Power of Attorney

Information that is otherwise confidential may be shared with an individual who has submitted a valid Iowa Power of Attorney Form (IA 2848).

The Federal Power of Attorney form or a Military Power of Attorney are also accepted by the Iowa Department of Revenue. To be valid, the Federal or Military form must contain a written statement that indicates it is being submitted for use with State of Iowa forms. The statement needs to be initialed by the taxpayer.

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