Employee Tax Expert

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A number of states use this method for determining part-year or nonresident tax.  They pretend that all of the income is taxable in the state, calculate hypothetical tax on that amount, and then prorate the tax to the percentage of income actually earned and taxable to the state.  Although out-of-state income is not taxed there, it can look like it is because of how it appears on the tax return.  This is what is happening here.  Iowa is not taxing your son's income, but they do factor it in to determine Iowa tax to pay on that income.

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