This experience was investigated further to determine whether there is an issue with the TurboTax program. TurboTax is working properly with regard to the Iowa 529 contributions.
The Iowa 529 contribution is a negative adjustment that would be used to lower the Iowa taxable income. However, it is not the only adjustment that is taken into account. For example, there is also an adjustment that is made for your 2022 (or prior year) Federal income tax refund. This is a positive adjustment that would be used to raise the Iowa taxable income. This positive adjustment could eliminate the negative adjustment made for the Iowa 529 contribution. These are only a couple of the possible adjustments that may be made to the Iowa taxable income -- some are done automatically, and some must be entered. The end result could be an addition to income instead of a subtraction.
The changes in the refund meter should not be followed too closely until all of your information has been entered. TurboTax does calculations behind the scenes at different points in the program that make it go up and down constantly.
When you print your Iowa state tax return, take a look at Form IA 1040. The total modifications (adjustments) will be shown on line 3. Then, toward the bottom of that same form, there will be a section labeled IA 1040 Schedule 1. In this section you can see all of the modifications and how they combine together. Line 22 shows the Net Modifications used on your return. If the only modification or adjustment that you entered was your 529 plan contribution, you will see that amount on line 19 as a positive number. As long as the other modifications shown in column A of line 20 are not larger than your 529 contributions, then your Iowa taxable income will be reduced.
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