GILTI & FDII

On June 29, 2020, Governor Kim Reynolds signed 2020 Iowa Acts, House File 2641, which, in part, excludes GILTI under Internal Revenue Code (IRC) section 951A from the Iowa corporate income tax base. This change is retroactive and applies to all tax years beginning on or after January 1, 2019.

Taxpayers who filed 2019 returns that included GILTI prior to the law change may need to file amended returns, as described below, to exclude GILTI from their Iowa income.

For federal purposes, all U.S. shareholders must include as U.S. income the shareholder’s GILTI under section 951A of the IRC. GILTI is included in U.S. income based on the shareholder’s ownership interest in any CFC in which the U.S. shareholder owns shares. A CFC is any foreign corporation 50% or more of which is owned by U.S. shareholders. GILTI is the excess of the shareholder’s net CFC tested income over the shareholder’s net deemed tangible income return for the year. Corporations which are taxed as such (C corporations) are generally eligible for a deduction equal to 50% of GILTI (GILTI Deduction) for federal purposes under section 250(a)(1)(B) of the IRC. Beginning in tax year 2019 GILTI is included in calculating individual and fiduciary income taxpayers’ Iowa income.

Iowa Treatment under 2020 Iowa Acts, House File 2641:

For corporate income and franchise taxpayers net GILTI is excluded from Iowa net income. Because GILTI is fully excluded from the corporate income tax base under Iowa law, corporations (including those subject to the franchise tax for Iowa purposes) are not permitted to take the 50% GILTI deduction allowed under IRC section 250(a)(1)(b) for Iowa purposes. NOTE: 2020 Iowa Acts, House File 2641 excludes GILTI from Iowa net income for corporate taxpayers. The law does not treat GILTI as a foreign dividend, or as subpart F income, and no portion of GILTI should be used in calculating a corporate taxpayer’s Iowa foreign dividends received deduction.

This exclusion does not apply to individuals or fiduciaries (estates and trusts). Individual and fiduciary income taxpayers must include all GILTI, including amounts resulting from the taxpayer’s ownership in a partnership or S corporation and amounts reported on any federal 1041 K-1s received by the taxpayer, in their Iowa net income to the same extent it was included in their federal adjusted gross income. NOTE: If an individual is permitted to file as a corporation under the IRC, that fictional status is not recognized for Iowa purposes, and the individual's taxable income shall be computed as required under the IRC provisions relating to individuals not filing as a corporation.

Pass-through entities (partnerships and S corporations) are not treated as owners of a Controlled Foreign Corporation (CFC) at the federal level for purposes of computing GILTI. As such, GILTI is not included in the partnership’s or S corporation’s income at the federal level and is instead attributed directly to the partners or shareholders. Therefore GILTI should not be included in the partnership’s or S corporation’s Iowa income, and no Iowa adjustment is required or allowed on an IA 1065 or IA 1120S return or Iowa K-1. Individual partners or shareholders must include all GILTI received from a passthrough as reported on their federal K-1 for Iowa purposes.

A. Reporting Income

Individual and fiduciary income taxpayers who have GILTI at the federal level must also include this income in their Iowa net income. Generally, these taxpayers will not need to make additional Iowa adjustments to the federal GILTI amounts included in their Iowa net income.

For IA 1040 filers, GILTI is included in the amount shown on IA 1040, line 14, code m to the same extent included in the taxpayer’s federal adjusted gross income. Individuals are not eligible for the GILTI Deduction under IRC section 250 for Iowa purposes.

For IA 1041 filers, GILTI is included in the amount shown on IA 1041, line 8 to the same extent included on the taxpayer’s federal 1041. Fiduciary income tax filers are generally not eligible for the GILTI Deduction under IRC section 250 for federal or Iowa purposes.

For IA 1120 filers, net GILTI should be included in the amount entered on IA 1120, line 1 to the same extent included in the taxpayer’s federal net income before the net operating loss. The same amount of net GILTI included on line 1 should then be entered as an “Other Reduction” on IA 1120, Schedule A, line 16.

For IA 1120F filers, net GILTI should be included in the amount entered on IA 1120F, line 1 to the same extent included in the taxpayer’s federal net income before the net operating loss. The same amount of net GILTI included on line 1 should then be entered as an “Other Reduction” on IA 1120F, Schedule D, line 7.

For IA 1065 and IA 1120S filers, GILTI income is not included at the entity level, so no Iowa adjustment is required or allowed on an IA 1065 or IA 1120S return or K-1.

GILTI should not be included in calculating a taxpayer’s Iowa apportionment factor.

For tax years beginning on or after January 1, 2019, Iowa fully conforms with the federal deduction for FDII under IRC section 250(a)(1)(A). Generally, taxpayers will not need to make additional Iowa adjustments to the federal deduction amount included in their Iowa taxable income, except for certain taxpayers who file federal consolidated returns, as described below.

Corporate income taxpayers that are included on a consolidated federal return may be required to file separate Iowa returns or file an Iowa consolidated return that includes only those members of the federal consolidated group that are subject to Iowa corporate income taxes.

In either of those scenarios the separate entity or Iowa consolidated group will need to calculate its own GILTI and its FDII deduction to determine the correct amount of Iowa income. To do this, the entity or Iowa consolidated group must calculate GILTI, and the FDII deduction, in the same manner they would have for federal purposes, but using only the income of the separate entity or Iowa consolidated group. The net GILTI amount may then be subtracted out as described in the section on reporting income above.

Beginning in tax year 2019, Global Intangible Low-Taxed Income (GILTI) is included in individual and fiduciary (estates and trusts) income taxpayers' Iowa net income, but under recent legislation GILTI is excluded from income for Iowa corporate income and franchise tax purposes. Taxpayers are allowed the same deduction for Foreign Derived Intangible Income (FDII) for Iowa purposes that they are allowed for federal purposes. Corporate taxpayers that file consolidated federal returns may have to make certain adjustments to both GILTI and the FDII deduction in order to properly report their income for Iowa purposes. Partnerships and S-Corporations are not typically required to include GILTI on their Iowa returns or make any Iowa specific adjustments to amounts reported on K-1s, but individual and fiduciary income taxpayers are required to report GILTI received from a passthrough to the same extent included on their federal returns for Iowa purposes.