The Illinois-Iowa reciprocal agreement applies only to W2 wages and salaries. It does not apply to self-employed income.
https://tax.iowa.gov/iowa-illinois-reciprocal-agreement#:~:text=Iowa%20and%20Illinois%20have%20a,Iow....
If your wife had self-employed income in Illinois, it is taxable by Illinois, as well as by her home state of Iowa. She'll be able to take a credit on her IA return for taxes paid to IL on the income taxed by both states, so she won't be double-taxed.
**Answers are correct to the best of my ability but do not constitute tax or legal advice.
