UPDATE TO THIS STORY:  Effective with 2010 tax returns, the Iowa Earned Income Credit is simply 7% of the federal Earned Income Credit.  No re-calculations are necessary.  For you brave souls who wish to see how the Iowa Earned Income Credit was calculated prior to 2010, keep reading!

Iowa offers a form of Earned Income Credit, but the calculation of the credit can be quite complex.  At first glance, the calculation seems straightforward – the Iowa Earned Income Credit is 7% of whatever your federal Earned Income Credit is.  But that only applies to certain taxpayers who:

  • Filed a joint federal return, have no qualifying children, and income of $5,980 or less.
  • Filed a joint federal return, with 1 qualifyingchild, and income of $8,970 or less.
  • Filed a joint federal return with 2 qualifying children, and income of $12,590 or less.
  • Did not file a joint return and have no more than 2 qualifying children.

All other taxpayers will have to re-calculate their earned income credit based on formulas provided for different scenarios in the instructions to the Iowa Form 1040.  Some people who qualify for the EIC on their federal returns will find that they don’t qualify for any Iowa EIC at all.  Also, same-sex married couples who qualify for the EIC on their “single” federal tax returns will probably find that they don’t qualify for the Iowa EIC, either, because same-sex couples have to re-calculate their federal EIC based on what it would have been if the couple had filed a joint federal return.

Headache-inducing re-calculations such as this is just one of the many reasons why Iowa consistenly ranks in the bottom-10 in terms of tax climate (Iowa ranked 42nd in individual tax climate in the most-recent study conducted by the Tax Foundation).

 

“This blog post, along with comments that may follow, should not be considered tax advice. Before you make final tax or financial decisions, please secure a professional tax advisor to give you advice about your unique situation. To secure Jason as your accountant, please click on the ‘Services’ link at the top of the page.”