Iowa Line 27 Calculation (Federal income tax refund)

[RetiredProf]

The worksheet for line 27 on the Iowa 1040 is subtracting the $2,800 Federal Economic Impact Payments (EIP) we received from our federal income tax refund. It is picking up this amount from the federal Recovery Rebate credit worksheet, line 13. I do not believe the EIP received should be subtracted in such a way. For example, if a taxpayer received a $4,000 federal income tax refund and $2,800 EIP, line 27 should show $4,000 not $1,200 ($4,000 - $2,800 per the line 27 worksheet).

[JohnW152]

In fact, the worksheet is calculating your amount correctly.

According to the New for 2021 section of the IA 1040 Income Tax Return Instructions, 

Economic impact payments (EIPs) whether in the form of a rebate or refundable tax credit will not be included in Iowa taxable income, or added back as part of your reportable federal income tax refund. 

And later, in Step 7 – Federal Income Tax Refund / Overpayment Received in 2021, the taxpayer is instructed not to include the amount of Economic Impact Payment (stimulus payment) in the federal refund amount.

[RetiredProf]

I agree that any EIP received should not increase Iowa taxable income. However, it should not decrease Iowa taxable income either. When the line 27 worksheet subtracts the EIP from the federal tax refund, it decreases Iowa taxable income, which does not seem right.

[RetiredProf]

I see that the latest update of the line 27 worksheet no longer subtracts EIP from the federal income tax refund. Thank you for correcting this error.