Iowa changed its tax code effective in 2023. Prior to this change, Iowa allowed federal taxes paid within the given tax year to be deducted when calculating Iowa taxes. However, if an estimated or final federal tax payment or federal refund occurred in the subsequent calendar year, it would not be included in the Iowa tax calculation until the subsequent year. For example, if the following payments were made:
Estimated Taxes
4/1/22 - $2000
6/1/22 - $1750
9/1/22 - $1500
1/1/23 - $1250
Final Tax payment – 4/1/23 - $1000
The payments made in calendar 2022 ($5250) were deducted when calculating 2022 taxes, however, adjustments for payments/refunds in calendar 2023 ($2250) could not be made until 2023 taxes. In prior years, TurboTax Iowa has correctly imported and applied these payments.
For 2023 and beyond, Iowa will no longer allow federal tax payments to be deducted when calculating Iowa taxes. However, there is a one year (2023) grace period where previous adjustment can be made when calculating 2023 taxes. To date (2/1/24), TurboTax Iowa 2023 does not appear to be importing previous payments/refunds correctly into Form IA 1040 Schedule 1 Line 18. It appears that payments made in the prior year (i.e., 2022) should be imported from 2022 into Form IA 1040 Schedule 1 Line 18 at step E (currently reporting $0). At this time, the software is including all estimated tax payments for 2022 and 2023 on Line 18 and is overstating the deduction. Using the example above, the software is currently deducting payments totaling $7500 and should only be deducting $2250. On Form IA 1040 Schedule 1 Line 18, Step A represents the total tax liability imported from last years turbo tax, Step D subtracts federal payments made in 2022 and reported on W-2s, Step E should subtract estimated taxes paid in 2022 – The result will then be any remaining 2022 tax liability (estimated and final) paid in 2023.
EDIT - appears that the software will provide the correct calculation on a fresh import. However, I have already entered 95% of my w-2s, 1099, etc. and would rather not have to redo all of those entries in to a new return. Would be nice if the software would reimport into an existing file to make the correction rather than having to start over.
