Iowa has a reciprocal agreement with Illinois. This means the wages and salaries earned by the taxpayer should be taxed only in the taxpayer's state of residence. Income from gambling in Iowa is taxable to Iowa regardless of where the taxpayer lives.
If your employer accidentally withheld Illinois taxes from your pay, you will need to file a nonresident Illinois return to claim a refund of the taxes withheld.
The credit for taxes paid to another state is automatically calculated in your account when you add a Nonresident return to your already created Resident Iowa return.
If you qualify for the reciprocal agreement, you will need to remove the automatic calculation by logging into your account and going to:
- State Section
- Iowa Resident Return
- Complete the information required.
Add the Illinois Nonresident Return to the account. Go to the Part Year and Nonresident Questions and indicate you were a resident of Iowa for the tax year. Click Continue through the state return.
You will need to remove the Illinois wages from the state return. To do so, go to:
- Federal Section
- Enter Myself
- Wages and Salaries
- Edit the W-2 with Illinois source income. Remove the amount in Box 16. Continue to save the changes. Disregard the warning about the withholdings.
The Illinois return must be printed, signed and mailed to the state. Include a note explaining that you are a resident of a reciprocal state, a copy of the Iowa return and copies of your W-2(s) showing the income.
To claim exempt from future Illinois withholdings, file form IL-W-5-NR with your employer.
NOTE: The nonresident returns will refund all or most of the taxes withheld. The resident return will calculate an amount owed (usually).