According to the instructions from the Iowa Department of Revenue (https://tax.iowa.gov/sites/default/files/2024-03/2023%20Expanded%20Instructions_030824.pdf), Iowa taxes start with leveraging the Federal filing and and adjusting from there. As part of that, they use an IA 1040 Schedule 1 to determine modifications to the Federal Filing such as subtracting out pension, IRA and Social Security income from the federal income. I've noticed some discrepancies as to TurboTax Premier's treatment and carryover of data from the Fed form inputs. Of course, some (or all) of these observations could be incorrect based on my lack of accounting knowledge... Afterall, that's why I use Turbotax.
1. I inherited a small railroad retirement income which seems to be ignored Schedule 1 Line 7 (IRA/Pension/Railroad Retirement Income) for a subtraction.
2. On Schedule 1 Line 15, Iowa allows a income subtraction for Health insurance deduction if Iowa income is less than $100,000. My Iowa income would meet that criteria, however Iowa stipulates that you must add back the IRA/Pension/Railroad Retirement Income that was subtracted out in order to meet that requirement. I zeroed out all the medical expenses I could, but Turbotax still shows a subtraction for Medicare premiums reported on Form SSS-1099 which are automatically paid out of Social Security. As such, that subtraction should not be allowed... And TurboTax still allows the medical dedution. It appears Turbotax ignores the requirement to not allow that subtraction if you exceed the $100,000 limit AFTER re-adding the retirement income back in to the Iowa income. I don't see a way to manually remove the medical premium entry from the Iowa Modifications to Federal Taxable Income calculation.
3. The IA-1040 instructions indicate that "you are exempt from Iowa tax if you meet both of the following conditions: 1. Your Iowa taxable income from all sources, line 4, is $13,500 or less ($32,000 if you or your spouse was 65 or older on 12/31/23). 2. You are not claimed as a dependent on another person’s Iowa return." With both me and my wife being over 65, and our Iowa taxable income after applying the Schedule 1 reductions as I understand them are less than $32,000. Therefore, I would think that we are exempt from Iowa tax. Yet TurboTax still calculates a tax (apparently ignoring the $32,000) according to the tables provided in the IA Tax Calculation Worksheet 41-026 (https://tax.iowa.gov/sites/default/files/2023-12/TaxCalculationWorksheet%2841026%29.pdf). Am I not understanding something here?
Any comments or other observations are certainly invited.
