Work in Iowa, Live in Illinois: How Taxes Work

Reciprocity

Do Iowa and Illinois Have a Tax Reciprocity Agreement?

Yes. Iowa and Illinois have a reciprocal individual income tax agreement covering wages and salaries. Under the agreement, wages earned by an Illinois resident working in Iowa are taxable only to Illinois, and wages earned by an Iowa resident working in Illinois are taxable only to Iowa. The Iowa Department of Revenue states the rule directly: any wages or salary made by an Illinois resident working in Iowa is taxable only to Illinois and not to Iowa.

The agreement applies only to wages and salaries. Iowa continues to tax other Iowa-source income received by an Illinois resident, including Iowa gambling winnings and unemployment compensation for employment in Iowa. If your Iowa income is limited to a paycheck from an Iowa employer, you have no Iowa filing requirement for that income once the exemption is on file. If you have other Iowa-source income, you may still owe an Iowa nonresident return for that portion.

Illinois recognizes the same arrangement from the other direction. The Illinois Schedule CR instructions list Iowa, Kentucky, Michigan, and Wisconsin as the four reciprocal wage states. An Illinois resident working in any of those four states is not subject to that state's income tax on wages, and any tax mistakenly withheld must be recovered by refund from the work state rather than by Schedule CR credit on the Illinois return.

Filing Obligations

Which Tax Returns Do I File as an Illinois Resident Working in Iowa?

File your Illinois IL-1040 as a full-year resident and report all income from every source, including your Iowa wages. Because the reciprocity agreement removes Iowa tax on those wages at the source, you do not claim a Schedule CR credit on the Illinois return for reciprocal state wages. The Illinois instructions are explicit that you may not claim a credit on Schedule CR for wages covered by a reciprocal agreement.

You need to file an Iowa nonresident return only if you have non-wage Iowa-source income above the nonresident threshold, or if Iowa tax was withheld in error and you want a refund. In that case, use Form IA 1040 with Schedule IA 126, the Iowa Nonresident and Part-Year Resident Credit Schedule.

Employer Withholding

How Do I Stop Iowa Withholding on My Paycheck?

File Iowa Form 44-016, Employee Statement of Nonresidence in Iowa, with your Iowa employer. Iowa says the form lets your employer know it is appropriate to withhold Illinois income tax instead of Iowa tax, because wages an Illinois resident earns in Iowa are taxable only to Illinois.

File the form with each Iowa employer you work for. Also complete Illinois Form IL-W-4 so your employer applies the correct Illinois allowances. Check your first pay stub of the year: the state line should show IL, not IA.

If your Iowa employer is not set up to withhold Illinois tax, you may need to make quarterly Illinois estimated payments on Form IL-1040-ES to avoid an underpayment penalty at filing time.

Refund of Wrong Withholding

What If Iowa Tax Was Withheld From My Iowa Wages?

If your Iowa employer withheld Iowa income tax on wages covered by the reciprocity agreement, the money is not lost. You reclaim it by filing an Iowa nonresident return (Form IA 1040 with Schedule IA 126) and requesting a full refund of the Iowa tax withheld on your wages. Report the wages as all-source income on the return, then exclude them from Iowa-source income on the IA 126 because reciprocity removes them from Iowa taxation.

Do not claim those wages as a credit on Illinois Schedule CR. The Illinois Schedule CR instructions specifically bar a credit for tax paid to a reciprocal state on wages covered by the agreement, because the correct remedy is a refund from Iowa, not a credit on Illinois.

After receiving the Iowa refund, file your Illinois IL-1040 as usual, reporting all wages and paying Illinois tax at 4.95 percent. To prevent the same problem next year, submit a fresh IA 44-016 to your employer and confirm the payroll change on your next pay stub.

Remote Work

What If I Work From Home in Illinois for an Iowa Employer?

Days worked at your Illinois home are Illinois-source days. Because the reciprocal agreement covers your wages, where you work each day does not matter for them: Iowa does not tax an Illinois resident's wages either way. When you work in Illinois, Illinois taxes those wages as a resident. When you commute into Iowa, the reciprocity agreement still routes the Iowa-worked wages back to Illinois for tax.

The result: for a pure Illinois resident, all wages from the Iowa job land on the Illinois return regardless of where the work was performed. Reciprocity handles the on-site Iowa days, and Illinois residence handles the remote days. You do not need to split the wages by day for state purposes as long as reciprocity is in force.

Keep a workday log anyway. If reciprocity is ever suspended by either state, or if you later move out of Illinois mid-year, you will need to allocate wages between Iowa and Illinois days.

Worked Example: Illinois Resident Earning $70,000 in Iowa

Single filer, all wages from an Iowa employer with IA 44-016 on file, 2026 rates applied to gross wages before deductions

Non-Wage Iowa Income

Which Iowa Income Is Not Covered by Reciprocity?

The reciprocal agreement applies to wages and salaries only. Iowa keeps taxing an Illinois resident on other Iowa-source income, including Iowa gambling winnings, Iowa unemployment compensation for employment in Iowa, Iowa self-employment income, and income from Iowa real estate or a pass-through entity doing business in Iowa. For any of these, you file Iowa Form IA 1040 as a nonresident with Schedule IA 126 to report only the Iowa-source portion.

You then claim an out-of-state credit on your Illinois return for the Iowa tax paid on that non-wage income, using Illinois Schedule CR. That credit is allowed because the income is outside the scope of reciprocity. Wages are different: if an Iowa employer withheld Iowa tax on your pay, Illinois says you must claim a refund from Iowa and may not take a Schedule CR credit for it.

Nonresidents must file an Iowa return once Iowa-source net income reaches the low nonresident threshold. Check the current Who Must File instructions before deciding to skip a filing.

Mid-Year Move

What If I Moved Between Illinois and Iowa During the Year?

If you changed your permanent residence between the two states during the year, file as a part-year resident in each. In Illinois, use Form IL-1040 with Schedule NR to compute Illinois tax on income earned while an Illinois resident and any Illinois-source income earned as a nonresident. In Iowa, use Form IA 1040 with Schedule IA 126 to report Iowa-source income and the residency period.

Reciprocity protection applies only while you are an Illinois resident. Wages earned in Iowa during any period you were an Iowa resident are taxed by Iowa in full, not routed to Illinois. Document your move date carefully. Utility connect dates, lease or mortgage signing dates, and driver license changes are the usual proof both states request.

If you had Iowa withholding during your Illinois-resident months but no IA 44-016 on file, file the Iowa nonresident return to recover the Iowa tax on those wages.

Local Taxes

Are There Local City or County Income Taxes on Either Side?

Illinois does not impose a local individual income tax on wages. There is no city or county income tax layer on the Illinois side of the border. Iowa cities and counties also do not impose a local wage tax on individuals, so the reciprocal agreement does not leave a hidden local tax obligation for cross-border commuters.

Iowa school districts levy an Iowa school district surtax that is added to Iowa individual income tax for residents of the taxing district. Because you are an Illinois resident and not an Iowa resident, the Iowa school district surtax does not apply to your wages. It only affects Iowa residents on their Iowa individual income tax.

Your only state and local income tax exposure on Iowa wages, once reciprocity is properly set up, is Illinois state income tax at the 4.95 percent flat rate. If you also earn Iowa self-employment income or hold rental property in Iowa, that non-wage stream is outside reciprocity and follows the regular Iowa nonresident filing rules described above, with an Illinois Schedule CR credit for the Iowa tax paid on that portion.