Iowa allows eligible taxpayers to subtract qualifying military retirement pay from Iowa taxable income if the retirement pay was included in federal taxable income. The subtraction is claimed on IA 1040 Schedule 1 (Iowa Modifications to Federal Income) and applies only to qualifying military retirement pay as provided under Iowa law.
Military Retirement Income Subtraction
Eligible taxpayers may subtract qualifying military retirement pay received for service in the United States Armed Forces, the Armed Forces Military Reserve, or the National Guard, provided the retirement pay was included in federal taxable income.
Military Retirement Income Deduction
- Qualifying retirement pay includes retirement benefits received for service in the U.S. Armed Forces, the Armed Forces Military Reserve, or the National Guard.
- Only military retirement pay received from the Defense Finance and Accounting Service (DFAS), or a similar military pay source, qualifies for the exemption.
- Retirement benefits paid by the Office of Personnel Management (OPM, do not qualify for this exemption
Eligibility Requirements
To qualify for the Iowa military retirement income subtraction:
- The retirement pay must be for military service in the United States Armed Forces, the Armed Forces Military Reserve, or the National Guard.
- The retirement pay must be included in federal taxable income.
- The retirement pay must be received from a qualifying military retirement system.
- Retirement benefits paid through civilian federal retirement systems, including CSRS, FERS, or OPM-administered civilian retirement programs, are not eligible for the subtraction.
Part-Year Residents and Nonresidents
Part-year residents and nonresidents should determine the allowable military retirement income subtraction according to Iowa residency and income allocation rules. Taxpayers should follow the applicable Iowa forms and instructions when calculating the allowable subtraction.
How to Claim the Subtraction
- Determine the amount of qualifying military retirement pay included in federal taxable income.
- Complete IA 1040 Schedule 1 following the Iowa Department of Revenue instructions.
- Enter the allowable military retirement income subtraction on the appropriate line of Schedule 1.
- Retain documentation supporting the subtraction, including military retirement statements and federal tax records.
Important Notes
- Only qualifying military retirement pay included in federal taxable income is eligible for the Iowa subtraction.
- The subtraction applies only to retirement pay from qualifying military retirement systems and does not apply to civilian federal retirement benefits.
- Taxpayers should review the current-year Iowa Department of Revenue instructions to determine eligibility and calculate the allowable subtraction.
Source:
Form IA 1040
Iowa Administrative Code Rule 701—302.58
IA 1040 Schedule 1 Instructions
Disclaimer: Always verify details with the most current Federal and State Department of Revenue forms and instructions. For complex situations, consult a CPA or tax attorney.