The Iowa-Illinois Reciprocal Agreement is a tax treaty between the states of Iowa and Illinois that prevents double taxation for residents working across state lines. Under this agreement, wages or salaries earned by an Iowa resident working in Illinois are taxable only to Iowa and not to Illinois. Conversely, wages or salaries earned by an Illinois resident working in Iowa are taxable only to Illinois and not to Iowa.
Key Provisions
- Iowa residents working in Illinois: Wages and salaries are taxable only by Iowa and are exempt from Illinois income tax under the reciprocal agreement when the required Illinois nonresidency certificate is provided to the employer.
- Illinois residents working in Iowa: Wages and salaries are taxable only by Illinois and are exempt from Iowa income tax under the reciprocal agreement when the applicable requirements are met.
- The reciprocal agreement applies only to wages and salaries. It does not apply to other types of income, such as business income, rental income, gambling winnings, or income from real property.
- Nonresidents and part-year residents with Iowa-source income other than wages covered by the reciprocal agreement may be required to file Form IA 1040. When applicable, Form IA 126, Nonresident and Part-Year Resident Credit, must be completed to calculate the allowable credit.
Reporting Requirements
- Iowa residents working in Illinois should provide their employer with Form IL-W-5-NR, Employee's Statement of Nonresidence in Illinois, to claim exemption from Illinois income tax withholding on wages.
- Illinois residents working in Iowa may still be subject to Iowa income tax on Iowa-source income not covered by the reciprocal agreement, such as business income, rental income, or income from Iowa real property.
Source:
Form IA 1040
Disclaimer: Always verify details with the official forms and instructions from the Iowa Department of Revenue or the Illinois Department of Revenue. For complex situations, consult a tax professional or attorney.