State & Local Tax Impacts of COVID-19 for Iowa – 2021

Thoughtware Alert Published: May 03, 2020 | Updated: Sep 09, 2021
SALT GOV COVID TW - 1

Information current as of August 31, 2021.

COVID-19 has changed life across the globe. Many taxing jurisdictions are taking mitigating actions to create social distance and aid taxpayers. The following is a running list of actions by jurisdiction, which generally result in additional time to file and/or pay. Further, many jurisdictions have closed their offices to in-person use by taxpayers and suspended their audit and administrative functions. This alert doesn’t cover similar waivers from local-level taxing authorities. These developments continue to quickly evolve; check with your BKD Trusted Advisor or visit our COVID-19 Resource Center for current information as needed.

Information Specific to Iowa

  • Iowa issued guidance on the taxability of federal COVID-19 economic impact payments in the state for individual income tax purposes. Specifically, the recovery rebates authorized in Section 2201 of the Coronavirus Aid, Relief, and Economic Securities Act (CARES Act) or §272 of the federal 2021 Consolidated Appropriations Act, whether in the form of a rebate or a refundable tax credit, won’t be included in the state taxable income or added back as part of an individual’s reportable federal income tax refund. 
    • Iowa DOR, COVID-19 FAQs; January 28, 2021.
  • Iowa issued information regarding the state’s nonconformity with retroactive provisions of the CARES Act to the extent they apply to a tax year beginning prior to January 1, 2020. The provisions include 1) exclusion of the 2020 economic impact payments and forgiven Paycheck Protection Program (PPP) loans from Iowa taxable income; 2) modification for net operating losses; 3) modification of limitation on losses for taxpayers other than corporations (excess business losses); 4) modification of limitation on business interest; and 5) technical amendments regarding qualified improvement property.
    • Iowa DOR News Release, February 5, 2021.
  • Iowa updated information regarding the state’s nonconformity with retroactive provisions of the CARES Act to the extent they apply to a tax year beginning prior to January 1, 2020. The guidance also provides explanations of certain provisions and their effect on Iowa individual income, corporate income, and trust income taxes for tax years beginning on or after January 1, 2020. The provisions include 1) exclusion of the 2020 economic impact payments and forgiven PPP loans from Iowa taxable income; 2) modification for net operating losses and limitation on losses for taxpayers other than corporations (excess business losses); 3) modification of limitation on business interest; 4) modification for wages to which the Employee Retention Credit applies; and 5) technical amendments regarding qualified improvement property.
    • Iowa DOR, New Release; March 18, 2021.
  • Iowa has extended the filing and payment deadline for personal income tax returns and first-quarter estimated income tax payments from April 30, 2021, to June 1, 2021.
    • Iowa DOR, Order 2021-01; March 29, 2021.
  • Iowa automatically conforms with the Internal Revenue Code, so the retroactive exclusion of the first $10,200 of 2020 unemployment benefits per the American Rescue Plan Act of 2021 also is excluded for Iowa individual income tax purposes. The federal legislation was enacted after many taxpayers had already filed their returns. As a result, and to assist these taxpayers, Iowa will begin making unemployment compensation-related automatic adjustments. Taxpayers won’t need to file an amended Iowa tax return if their only adjustment pertains to unemployment compensation.
    • Iowa DOR, Notice, March 29, 2021.
  • Iowa tax legislation includes some COVID-19-related provisions. Iowa exempts the proceeds of grants received by a taxpayer from COVID-19 assistance programs administered by the Economic Development Authority Iowa Finance Authority, and Department of Agriculture and Land Stewardship from the income tax. The income exclusion is repealed on January 1, 2024. In addition, the existing tax preference available for the income and deductions associated with a forgiven PPP loan is expanded to include taxpayers who received a PPP loan in the taxpayers’ 2019 tax year. Existing law provides an income tax exemption and associated expense deduction for forgiven PPP loans for tax years beginning on or after January 1, 2020. 
    • Iowa S.F. 619, effective July 1, 2021, and as noted.
    • Iowa DOR, FAQs; July 16, 2021. 
    • Iowa Administrative Code, Emergency §701-40.86(422); §701-53.30(422); and §701-59.32(422); effective July 13, 2021.
  • Iowa issued updated information regarding the state’s nonconformity with retroactive provisions of the CARES Act for corporate income, individual income, and trust income tax purposes. Iowa generally conforms with the federal tax changes to the extent they affect Iowa income taxes for tax years beginning on or after January 1, 2020, including exclusion of the 2020 economic impact payments and forgiven PPP loans from taxable income. Iowa doesn’t conform to 1) changes in federal net operating loss deductions and carryback/carryforward provisions; 2) suspension of the limitation on excess business losses for taxpayers other than corporations for tax years 2018 and 2019; 3) the new employee retention credit; 4) the enhanced charitable contributions deduction and increased business interest deduction for tax year 2019; and 5) technical amendments regarding qualified improvement property.
    • Iowa DOR, Press Release; July 16. 2021.
  • Iowa issued guidance on business expense deductions attributable to qualifying COVID-19 grants allowed for individual income, trust income, and corporate income tax purposes. The guidance specifies 1) only COVID-19 grants identified by the DOR qualify for the exclusion; 2) the grants must be included in the taxpayer’s federal income as reported on the taxpayer’s state tax return; 3) the exclusion applies only to the extent the grants are included in a taxpayer’s federal income in a tax year beginning before January 1, 2024; 4) the exclusion applies only for eligible grants issued between March 17, 2020, and December 31; and 5) individuals, trusts and estates, corporations, S corporations, partnerships, and financial institutions can claim the exclusion by following the DOR’s process. 
    • Iowa DOR, Qualifying COVID-19 Grants; August 30, 2021.
       

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