Do expats from Iowa still need to pay state taxes?

Navigating state tax obligations is important for Iowa expatriates to avoid legal and financial pitfalls. 

Each state has unique tax laws, and Iowa is no exception. Understanding these rules is essential for Iowans living abroad to ensure compliance and manage their finances effectively. 

This article provides an overview of Iowa's specific tax considerations, helping expatriates maintain their fiscal responsibilities while they are away from home.

TLDR:

Understanding residency status in Iowa

Resident

A resident is defined as someone who maintains a permanent home in Iowa and spends more than 183 days within the state during the tax year. As a resident, you must pay Iowa state taxes on all income, regardless of where it was earned. This means global income is subject to Iowa taxes if Iowa is your domicile.

Nonresident

Nonresidents are those who do not maintain a permanent home in Iowa and spend fewer than 183 days in the state during the tax year. They are taxed only on their Iowa-source income, which includes earnings from work done in Iowa, income from Iowa-based businesses, or income from property located in Iowa. Nonresidents use the IA 126 form to report only their Iowa income.

Part-Year Resident

Part-year residents are individuals who either move to or from Iowa during the tax year and are hence considered residents for part of the year and nonresidents for the remainder. This category requires individuals to file taxes as residents when they lived in Iowa and as nonresidents when they did not, allowing them to adjust their taxable income based on where it was earned during the year.

Expatriates

Iowa expatriates must pay state taxes on worldwide income if Iowa remains their domicile in the US, defined as the primary home or the place with the closest connections. 

How to leave Iowa residency?

Changing your Iowa State residency involves several calculated steps to ensure a clear-cut transition.

1) Establish new residency

Secure a physical address in the new state.

You may want to consider filing a Declaration of Domicile with the state, as suggested in Savvy Nomad’s domicile guides.

• Florida residency guide
• South Dakota residency guide
• Texas residency guide
• Nevada residency guide

2) Transfer IDs and registrations 

Swiftly update your driver's license and vehicle registration.

3) Register to vote 

Voter registration in your new state.

4) Update documents

Make sure that all identification, medical, insurance, and financial documents show your new address.

5) Notify your employer

It's important to inform your employer about your change of residency, which can help in converting some of your income from "Iowa-sourced".

6) Notify IRS 

Inform the IRS of your address change using Form 8822. Extend this notification to all personal and professional entities.

7) Keep records

Document all relocation actions diligently.

8) Anticipate an audit

Be audit-ready with comprehensive proof of your move’s permanence.

Tax benefits and exemptions for expats from Iowa

Expatriates from Iowa can more effectively manage their tax obligations by utilizing specific tax benefits and exemptions.

Foreign Earned Income Exclusion

The FEIE allows expats to exclude a portion of their foreign-earned income from U.S. taxation, provided they meet certain residency or physical presence tests. 

FEIE Guide

Foreign Tax Credit

Meanwhile, the FTC helps prevent double taxation on income taxed in both the U.S. and the expat's country of residence. Essentially, it prevents double taxation: if you are already taxed on some income by a foreign country, you have the right to use that tax as a credit to lower your US tax liability. 

FTC Guide

Foreign Housing Exclusion (FHE)

The Foreign Housing Exclusion (FHE) is a significant tax benefit for U.S. expats and digital nomads living abroad. It allows a portion of their housing expenses to be excluded from taxable income, thereby reducing their U.S. tax liability.

Filing Iowa state taxes from abroad

Filing Iowa state taxes from abroad requires understanding residency status, identifying Iowa-sourced income, filing requirements, and using digital filing options.

Here's a step-by-step guide based on information from various sources:

1. Determine your residency status: 

Iowa categorizes individuals as residents, part-year residents, or nonresidents for tax purposes.

Your status affects your tax obligations:

• Residents are taxed on all income, regardless of where it was earned.
• Part-year residents are taxed on all income earned while living in Iowa and on Iowa-sourced income when living elsewhere.
• Nonresidents are taxed only on their Iowa-sourced income​

2. Identify Iowa-sourced income 

If you are still receiving income from Iowa sources, such as wages before moving, rental income, or business income, you are generally required to file an Iowa tax return. It's important to note that certain types of income, such as investment income and retirement plan distributions, may not be taxable for non-residents.

3. Understanding Filing Requirements

Residents, Part-Year Residents and Expats must file if their income is above a certain threshold or they wish to claim certain credits.

4. Use digital filing options 

Ensure all necessary documentation, including income statements and records of days spent in Iowa, is gathered, if applicable​.

The general deadline for filing Iowa state taxes is April 15th, aligning with the federal tax deadline.

However, if you live outside the U.S. on April 15th, you may be granted an automatic two-month extension to file your return and pay any amount due without requesting an extension. This extension typically pushes the deadline to June 15th.

It's important to note that if you owe taxes, interest may accrue on any unpaid amounts from the original April 15th deadline, even if you file later. Therefore, to minimize interest and penalties, it's advisable to estimate and pay any owed taxes by April 15th.

For those needing more time beyond the automatic extension period, you can request an additional extension, which usually extends the filing deadline to October 15th.

Remember, this extension is for filing your tax return, not an extension to pay taxes owed.