Iowa Income Tax Rates & Brackets (Tax Year 2025 — Filed in 2026)

Remote Workers and Multi-State Taxation

Living in Iowa, Working for an Out-of-State Employer

As an Iowa resident, you owe Iowa income tax on all income, regardless of where your employer is located or where the employer’s offices are situated.

What this means:

• Employer location does not determine your Iowa tax obligation
• Income from employers based in other states is fully taxable in Iowa
• Your Iowa employer must withhold Iowa income tax from your wages
• If your out-of-state employer does not withhold Iowa tax, you are responsible for making Iowa estimated tax payments

Example: An Iowa resident working fully remotely for a company headquartered in California owes Iowa income tax on that entire salary. The California employer’s location has no effect on Iowa tax obligations.

Credit for taxes paid to other states: Iowa residents who also owe income tax to another state on the same income may claim an Iowa credit for taxes paid to that other state. This credit prevents full double taxation but requires filing non-resident returns in both states.

Source: https://tax.iowa.gov/individual-income-tax and Iowa Code § 422.5

Working in Iowa, Living in Another State

Non-residents who perform work physically inside Iowa owe Iowa income tax on wages and income earned from Iowa sources.

Physical Presence Rule:
Iowa uses the physical presence standard for sourcing income. Wages are generally sourced to Iowa based on the proportion of services physically performed inside Iowa. Days worked in Iowa versus days worked outside Iowa determine the Iowa-source allocation.

Non-resident calculation:
Non-residents multiply total wages by the Iowa days fraction (Iowa working days ÷ total working days) to determine Iowa-source wages.

Source: https://tax.iowa.gov/individual-income-tax and Iowa Administrative Code 701—38.13

⚠️ Interstate Tax Risk Indicator

Remote workers with Iowa connections commonly encounter dual taxation complications with the following states:

Working with these states requires careful planning:

• New York — Applies the “convenience of the employer” rule, which may tax Iowa residents working remotely for New York employers
• California — Aggressive residency audits; may assert Iowa residents who spend extended time in California owe California tax
• Pennsylvania — Pennsylvania’s reciprocity with Iowa is limited; Pennsylvania has 200+ local income tax jurisdictions that may apply separately
• Illinois — Iowa and Illinois have a reciprocal agreement (see below), but non-covered income from Illinois sources remains taxable
• Nebraska and Missouri — Border state complications for commuters and part-year residents

Source: https://tax.iowa.gov/individual-income-tax and IRS Publication 505

“Convenience of the Employer” Rule

Iowa does not apply a “convenience of the employer” rule.

Non-residents are taxed only on income from work physically performed in Iowa. If an Iowa employer’s out-of-state employee works remotely from their home state, Iowa does not assert the right to tax that income solely because the employer is Iowa-based.

This is a taxpayer-favorable rule for non-residents working for Iowa-based employers from their home state.

Source: https://tax.iowa.gov/individual-income-tax and Iowa Administrative Code 701—38.13

Reciprocal Agreement with Illinois

Iowa has one reciprocal income tax agreement: with the State of Illinois.

What Iowa-Illinois reciprocity means:

Iowa residents who work in Illinois pay Iowa income tax on their wages — not Illinois income tax.

Illinois residents who work in Iowa pay Illinois income tax on their wages — not Iowa income tax.

How to claim reciprocity:

• Iowa resident working in Illinois: Provide your Illinois employer with Illinois Form IL-W-5-NR (Employee’s Statement of Nonresidence in Illinois) to stop Illinois withholding. Ensure your Iowa employer (or you, if self-employed) withholds or pays Iowa income tax.
• Illinois resident working in Iowa: Provide your Iowa employer with Iowa Form IA 44-016 (Employee’s Statement of Nonresidence in Iowa) to stop Iowa withholding. Pay Illinois income tax on wages earned in Iowa.

Scope of reciprocity:
The Iowa-Illinois reciprocal agreement covers wages and salaries only. It does not apply to:

• Self-employment income
• Business income
• Rental income
• Investment income

Non-wage income earned in Iowa by Illinois residents, or in Illinois by Iowa residents, follows normal sourcing rules and does not benefit from reciprocity.

Source: https://tax.iowa.gov/reciprocity and Iowa Code § 422.5(6)

Multi-State Tax Filing (No Reciprocity)

When earning income in multiple states without a reciprocal agreement:

1. File an Iowa resident return (IA 1040) reporting all income from all sources
2. File non-resident returns in each other state where income was earned
3. Claim the Iowa Credit for Taxes Paid to Another State on your Iowa return to avoid double taxation

Iowa Credit for Taxes Paid to Another State:

• Claimed on Iowa Schedule IA 130
• Credit equals the lesser of: (a) Iowa tax attributable to out-of-state income, or (b) tax actually paid to the other state on that income
• Credit is non-refundable

Forms required:

• Iowa Form IA 1040 — Iowa resident return
• Iowa Schedule IA 130 — Out-of-State Tax Credit
• Non-resident return in each other state where income was earned

Source: https://tax.iowa.gov/individual-income-tax and Iowa Code § 422.8