Per the Iowa 2011 Expanded 1040 Instructions, effective for taxable years beginning on or after 1 January 2011, all military pay received by active duty or reserve members of the Armed Forces is excluded from Iowa State income tax.
The military pay exclusion applies to all military members who claim Iowa as their state of legal residence, regardless of where the member is stationed.
Effective 1 December 2012, PPC will stop withholding state income tax for members claiming Iowa as their state of legal residence. However, PPC will continue to report earnings even though taxes will not be withheld. Members must continue to file Iowa state income tax returns to claim the exclusion of military pay. Other earnings by military personnel, such as investment income or income from other employment, are not exempt.
E-Mail ALSPO message K/12 provides updated procedures for Servicing Personnel Offices.