You must file both an Iowa tax return (as a resident() and an Illinois non-resident tax return to report this income correctly within the program.
Iowa and Illinois are reciprocal states meaning that they have an agreement not to deduct taxes for the state that you work in (Illinois) when you live in another state (Iowa).
However, you must enter your personal information in your "My Info" section correctly by indicating that you live in Iowa, but that you also earned income in Illinois when those questions are asked during the interview process.
Complete your Federal tax return (including adding your W-2 from IL), and then move on to complete your non-resident tax return next (Illinois), and then your state of residence (Iowa) tax return. It's important that you complete your tax returns in the correct order so that all of your entries transfer to the correct forms.
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