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65. IOWA EARNED INCOME TAX CREDIT.

The Iowa Earned Income Tax Credit is a refundable credit.

This credit is available only to taxpayers who qualify for the federal Earned Income Tax Credit (EITC).

To find out if you qualify for federal EITC, see the IRS EITC information or call the IRS at 1-800-829-1040.

Additional Iowa Eligibility Requirements

In some cases, taxpayers may be eligible for the federal EITC, but not be eligible for the Iowa EITC.  For example:

  • If you have 3 qualifying children, your federal earned income and Adjusted Gross Income (AGI) must both be less than $40,295 ($43,415 if married filing jointly) to qualify for an Iowa EITC.
  • If you have 2 qualifying children, your federal earned income and AGI must both be less than $40,295 ($43,415 if married filing jointly) to qualify for an Iowa EITC.
  • If you have 1 qualifying child, your federal earned income and AGI must both be less than $35,463 ($38,583 if married filing jointly) to qualify for an Iowa EITC.
  • If you have no qualifying children, your federal earned income and AGI must both be less than $13,440 ($16,560 if married filing jointly) to qualify for an Iowa EITC.

Calculating the Iowa EITC

If you meet the eligibility requirements above, this is how to calculate the Iowa EITC in various situations:

Situation A

Calculate the Iowa EITC by multiplying your federal EITC by .07 (7.0%) in these 4 scenarios:

  • You filed a joint federal return, have no qualifying children, and income* of $5,970 or less.
  • You filed a joint federal return, with 1 qualifying child, and income* of $8,950 or less.
  • You filed a joint federal return, with 2 qualifying children, and income* of $12,570 or less.
  • You did not file a joint federal return, and have no more than 2 qualifying children

    * The amount of income used to calculate the federal EITC

You must recalculate your federal EITC before calculating your Iowa EITC in situations B through F as follows:

(NOTE: This recalculation does not affect the EITC amount
entered on your federal return. It is required only to determine
the correct Iowa EITC. The amount of income used in making
this recalculation will be the same income used to calculate
the federal EITC. In those cases where the federal EITC is the
same using either earned income or AGI, earned income
should be used in the recalculation.)

Situation B

If you filed any federal status, have 3 qualifying children, and your income is under $12,570:

Use the federal EITC table and take 7% of the federal EITC for 2 qualifying children instead of 3 qualifying children using the same income.

Example: A joint return is filed with income of $11,525 and three qualifying children. The federal EITC is $5,186 for three children, and is $4,610 for two children. The Iowa EITC is 7% of $4,610, or $323.

Situation C

If you filed a joint federal return, 0 qualifying children and have income over $5,970 –

  • The federal credit is 7.65% of earnings up to $5,970; maximum credit of $457.
  • The maximum credit is $457 for incomes between $5,970 and $10,590. 
  • The credit phases out at a rate of 7.65% of earnings above $10,590
  • No credit is available once earnings are $16,560.

Worksheet: Joint federal return; 0 qualifying children, and income over $5,970

1) Income used to compute federal EITC

2) Subtract $10,590 — 10,590
3) Subtract line 2 from line 1. If less than zero, enter zero.

4) Multiply line 3 by 7.65%

5) Recalculated federal EITC. Subtract line 4 from $457.

6) Iowa EITC. Multiply line 5 by 7%.

Example: Joint federal return; 0 qualifying children, and income over $5,970

A joint federal return is filed for a family with no children.  The income used in the calculation of the federal EITC is $15,000. 

1) Income used to compute federal EITC
15,000
2) Subtract $10,590 — 10,590
3) Subtract line 2 from line 1. If less than zero, enter zero.
4,410
4) Multiply line 3 by 7.65%
337
5) Recalculated federal EITC. Subtract line 4 from $457.
120
6) Iowa EITC. Multiply line 5 by 7%.
8

 

Situation D

If you filed a joint federal return, 1 qualifying child and have income over $8,950 –

    • The federal credit is 34% of earnings up to $8,950; maximum credit of $3,043. 
    • The maximum credit is $3,043 for incomes between $8,950 and $19,540. 
    • The credit phases out at a rate of 15.98% of earnings above $19,540.
    • No credit is available once earnings are $38,583.

    Worksheet: Joint federal return; 1 qualifying child, and income over $8,950

1) Income used to compute federal EITC

2) Subtract $19,540 — 19,540
3) Subtract line 2 from line 1. If less than zero, enter zero.

4) Multiply line 3 by 15.98%

5) Recalculated federal EITC. Subtract line 4 from $3,043.

6) Iowa EITC. Multiply line 5 by 7%.

Example: Joint federal return; 1 qualifying child, and income over $8,950

A joint federal return is filed for a family with 1 child.  The income used in the calculation of the federal EITC is $30,000. 

1) Income used to compute federal EITC
30,000
2) Subtract $19,540 — 19,540
3) Subtract line 2 from line 1. If less than zero, enter zero.
10,460
4) Multiply line 3 by 15.98%
1,672
5) Recalculated federal EITC. Subtract line 4 from $3,043.
1,371
6) Iowa EITC. Multiply line 5 by 7%.
96

 

Situation E

If you filed a joint federal return, 2 or 3 qualifying children and have income over $12,570 –

  • The federal credit is 40% of earnings up to $12,570; maximum credit of $5,028. 
  • The maximum credit is $5,028 for incomes between $12,570 and $19,540. 
  • The credit phases out at a rate of 21.06% of earnings above $19,540.
  • No credit is available once earnings are $43,415.

Worksheet: Joint federal return; 2 or 3 qualifying children, and income over $12,570

1) Income used to compute federal EITC

2) Subtract $19,540 — 19,540
3) Subtract line 2 from line 1. If less than zero, enter zero.

4) Multiply line 3 by 21.06%

5) Recalculated federal EITC. Subtract line 4 from $5,028.

6) Iowa EITC. Multiply line 5 by 7%.

Example: Joint federal return; 2 or 3 qualifying children, and income over $12,570

A joint federal return is filed for a family with 2 children.  The income used in the calculation of the federal EITC is $40,000. 

1) Income used to compute federal EITC
40,000
2) Subtract $19,540 — 19,540
3) Subtract line 2 from line 1. If less than zero, enter zero.
20,460
4) Multiply line 3 by 21.06%
4,309
5) Recalculated federal EITC. Subtract line 4 from $5,028.
719
6) Iowa EITC. Multiply line 5 by 7%.
50

 

Situation F

If you filed other than a joint return and had 3 qualifying children and have income over $12,570:

  • The federal credit is 40% of earnings up to $12,570; maximum credit of $5,028. 
  • The maximum credit is $5,028 for incomes between $12,570 and $16,420.   
  • The credit phases out at a rate of 21.06% of earnings above $16,420.
  • No credit is available once earnings are $40,295.

Worksheet: Other than joint federal return, 3 qualifying children, and income over $12,570

1) Income used to compute federal EITC

2) Subtract $16,420 — 16,420
3) Subtract line 2 from line 1. If less than zero, enter zero.

4) Multiply line 3 by 21.06%

5) Recalculated federal EITC. Subtract line 4 from $5,028.

6) Iowa EITC. Multiply line 5 by 7%.

Example: Other than joint federal return, 3 qualifying children, and income over $12,570

A return is filed using the “head of household” status for a family with 3 children.  The income used in the calculation of the federal EITC is $35,000.

1) Income used to compute federal EITC
35,000
2) Subtract $16,420 — 16,420
3) Subtract line 2 from line 1. If less than zero, enter zero.
18,580
4) Multiply line 3 by 21.06%
3,913
5) Recalculated federal EITC. Subtract line 4 from $5,028.
1,115
6) Iowa EITC. Multiply line 5 by 7%.
78

If you are filing an Iowa return only to claim EITC

If you qualify for the low income exemption as explained in the instructions for line 26 and are filing an Iowa return only to claim a refund of the Iowa EITC, enter the words “low income exemption” in the area to the left of your net income figure on line 26. Enter zero on line 59. Enter the amount of your Iowa EITC on lines 65, 67, 68, 69, and 70.

NONRESIDENTS AND PART-YEAR RESIDENTS:

The Iowa EITC must be adjusted using the following formula.

Iowa net income (line 26, IA 126)

divided by

All-source net income of you and spouse (line 26, IA 1040)

X
Iowa Earned Income Tax Credit		 =
credit on line 65
   
The ratio cannot exceed 100%.      

 

Married Separate Filers: The Iowa EITC must be divided between spouses in the ratio of each spouse’s earned income to the total earned income of both spouses. Earned income includes wages, salaries, tips, other compensation, and net earnings from self-employment.

(Examples of how to prorate)

 

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