Live in Nebraska, Work in Iowa: Which State Taxes Your Paycheck?
Answer
Two returns, one credit. Iowa has the first claim on wages earned inside the state and withholds accordingly. Nebraska then taxes you as a resident on everything and gives credit for what Iowa already took, capped at what Nebraska would have charged on that same income.
Last verified
Two states can lawfully tax the same wages: Iowa because the work happened there, Nebraska because you live there. Nothing prevents the overlap in advance — it is unwound afterwards, on the Nebraska return, through the credit for taxes paid to another state.
A Nebraska resident taxed by another state on the same income claims the credit for taxes paid to other states on Form 1040N Schedule II. The credit is capped at the Nebraska tax on that income, so it removes the double tax but never refunds the excess when the other state charges more.
Iowa also has a layer below the state one, and it is the layer that survives every agreement: Many Iowa school districts levy a surtax calculated as a percentage of state income tax. It is reported on the state return rather than separately.
What you file
- 1Nonresident return · IowaForm IA 1040 with Schedule IA 126
File the Iowa nonresident return FIRST — you need the Iowa tax figure before you can complete Nebraska.
- 2Resident return · NebraskaForm 1040N Schedule II
File a Nebraska resident return reporting all income, then claim the credit for tax paid to Iowa. The credit is capped at what Nebraska would have charged on that same income, so if Iowa taxes it at a higher rate the difference is not refunded.
The two states, side by side
| Nebraska | Iowa | |
|---|---|---|
| Taxes wages | Yes — graduated | Yes — flat |
| Reciprocity partners | None | 1 (Form 44-016) |
| Convenience rule | Yes — general rule | No |
| Nonresident return | Form 1040N with Schedule III | Form IA 1040 with Schedule IA 126 |
| Credit for other-state tax | Form 1040N Schedule II | Form IA 130 |
| Nonresident safe harbour | None published | None published |
| Local income tax | No | Yes |
| Revenue department | Nebraska Department of Revenue | Iowa Department of Revenue |
| Last verified |
The other direction
Reversing the commute does not always reverse the answer. Living in Iowa and working in Nebraska gives:Both states — credit offsets the double tax.
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.
- Remote worker: Nebraska → IowaHome state only
- 1099 contractor: Nebraska → IowaHome state, plus the client state if you work there
- Moved mid-year: Nebraska → IowaTwo part-year returns
Other Nebraska pairs
Questions people actually ask
I live in Nebraska and work in Iowa. Which state takes the tax out of my paycheck?
Two returns, one credit. Iowa has the first claim on wages earned inside the state and withholds accordingly. Nebraska then taxes you as a resident on everything and gives credit for what Iowa already took, capped at what Nebraska would have charged on that same income.
Which state should my employer be withholding for?
Iowa. The wages are sourced to Iowa, so Iowa withholding is correct and there is no Nebraska withholding to set up.
Will I end up paying tax twice on the same income?
Not twice over, but you will pay the higher of the two rates. Nebraska gives residents a credit for tax paid to Iowa on the same income, claimed on Form 1040N Schedule II. The credit is capped at the Nebraska tax on that income, so if Iowa taxes it more heavily the excess is not refunded by either state.
How current is this?
The Nebraska and Iowa rules on this page were last checked against Nebraska Department of Revenue and Iowa 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.
- Nebraska Department of Revenue — individual income taxaccessed 2026-08-07
- Iowa Department of Revenue — individual income taxaccessed 2026-08-07