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Live in Iowa, Work in Illinois: Which State Taxes Your Paycheck?

Reciprocal agreement — file the exemption formIowa withholds

Answer

Illinois withholding is switched off by agreement. Iowa and Illinois hold a reciprocal arrangement covering wages, so as a Iowa resident you file Form IL-W-5-NR with your Illinois employer, have Iowa tax withheld instead, and file the Iowa resident return alone.

Last verified

A reciprocity agreement is a deal between two revenue departments about which of them withholds. Around thirty such agreements exist across sixteen jurisdictions, and Iowa and Illinois hold one — which is why this commute produces one return instead of two.

Illinois does not tax the wages of residents of Iowa, Kentucky, Michigan or Wisconsin. The employee gives Form IL-W-5-NR to the Illinois employer, which then withholds for the home state instead.

The certificate goes to your employer's payroll department, not to Illinois Department of Revenue, and it is not retroactive — filing it in June does not recover Illinois tax withheld in January. That money comes back only by filing a Illinois nonresident return for the year and claiming a refund.

What you file

  1. 1Give to your employer · IllinoisForm IL-W-5-NR

    Give your employer Form IL-W-5-NR so Illinois stops withholding. This goes to the employer, not to Illinois Department of Revenue — and it is not retroactive, so file it before the first paycheck of the year.

  2. 2Resident return · Iowa

    File a Iowa resident return reporting all of your income, including the wages earned in Illinois.

The two states, side by side

 IowaIllinois
Taxes wagesYes — flatYes — flat
Reciprocity partners1 (Form 44-016)4 (Form IL-W-5-NR)
Convenience ruleNoNo
Nonresident returnForm IA 1040 with Schedule IA 126Form IL-1040 with Schedule NR
Credit for other-state taxForm IA 130Schedule CR
Nonresident safe harbourNone published30 days
Local income taxYesNo
Revenue departmentIowa Department of RevenueIllinois Department of Revenue
Last verified

The other direction

Reversing the commute does not always reverse the answer. Living in Illinois and working in Iowa gives:Reciprocal agreement — file the exemption form.

Illinois to Iowa →

Same two states, different situation

The withholding answer turns on how you are paid and where the work happens, not only on which two states are involved.

Other Iowa pairs

Questions people actually ask

I live in Iowa and work in Illinois. Which state takes the tax out of my paycheck?

Illinois withholding is switched off by agreement. Iowa and Illinois hold a reciprocal arrangement covering wages, so as a Iowa resident you file Form IL-W-5-NR with your Illinois employer, have Iowa tax withheld instead, and file the Iowa resident return alone.

Which state should my employer be withholding for?

Iowa. Your employer should withhold Iowa tax rather than Illinois tax on these wages, but only once you have given payroll Form IL-W-5-NR — the exemption is not automatic and it does not apply retroactively. If a Illinois line is showing on your pay stub, raise it with payroll now rather than at filing time.

What if Illinois tax was already withheld from my pay?

File Form IL-W-5-NR with your employer to stop it going forward, then recover what was already taken by filing a Illinois nonresident return for that year and claiming a refund of the full amount. Iowa will still expect its own tax on the same wages, so do not treat the refund as a windfall.

How current is this?

The Iowa and Illinois rules on this page were last checked against Iowa Department of Revenue and Illinois Department of Revenue on 2026-08-07. We re-check the full grid every December after state legislative sessions close, and re-check the convenience-of-the-employer states quarterly because that is where the rules move fastest.

Sources

Every fact above comes from the revenue department that publishes the rule. We do not cite secondary summaries, and we do not restate a figure we could not find at source.