BEGINNING WITH TAX YEAR 2011: Members of the armed forces, armed forces military reserve, and the National Guard in an active duty status (as defined in Title 10 of the U.S. Code) can exclude pay received from the federal government for military service performed.
Active-duty military service pay is taxable only by the state in which the armed forces service member is a legal resident, which is usually the state of residence at the time he/she enters the service. In general, income other than active-duty military service pay of an Iowa resident in military service is taxable to the same extent as it is taxable for federal purposes, even if the Iowa resident is stationed outside of Iowa or outside of the United States.
Iowa residents who are members of the military should include the active duty pay received from the federal government for military service performed as income on line 1 of the IA 1040 and deduct the same active duty pay on line 24. Military members claiming this exclusion should be prepared to send a copy of their active duty military orders if requested by the Department.
WHAT INCOME IS SUBJECT TO IOWA TAX?
(IAC 40.5)
Military pay to Iowa residents must be included on line 1 of the IA 1040 to the same extent it is included on the federal return regardless of where the person is stationed when it is received.
Other income earned by an Iowa resident stationed in or out of Iowa is also taxable to Iowa to the same extent it is taxable on the federal level. If any of that income is correctly taxed by another state, then Iowa allows an out of-state tax credit on the IA 1040. This credit is calculated on the IA 130 form, which must be included with the IA 1040 with a copy of the other state’s return.
WHAT INCOME IS NOT SUBJECT TO IOWA TAX?
Active duty pay
Members of the armed forces, armed forces military reserve, and the National Guard in an active duty status (as defined in Title 10 of the U.S. Code) can exclude pay received from the federal government for military service performed.
NOTE: Members who are employed full-time in the National Guard (as defined in Title 32 of the U.S. Code) are not considered in an active duty status, so their pay is not excluded from Iowa tax.
Include all income on line 1 with other W-2, 1099, or W-2G income. Qualifying military income is then deducted on line 24.
Combat zone pay
Income excluded by the federal government is also excluded for Iowa income tax purposes. For example, combat zone pay is excluded on the Iowa return because it is excluded for federal income tax purposes.
The federal Military Family Tax Relief Act of 2003 provides for a number of tax breaks related to military personnel. Iowa follows the federal treatment of the military adjustments to gross income.
The Internal Revenue Service Web site is your best source of qualifying combat zones and tax breaks related to military personnel.
For more information, please see the Iowa Individual Income Tax Expanded Instructions section on “Iowa Tax Responsibilities of Military Personnel”.