Does Iowa tax South Dakota income if only one spouse works in Iowa?

Q. Does Iowa tax South Dakota income if only one spouse works in Iowa?

A. Yes. If you are both Iowa residents, Iowa will tax all your income, regardless of where it was earned. 

 The general rule is: your report all your income on your home state return, even the income earned out of state. You file a non-resident state return for the state you worked in and pay tax to that state. Your home state will give you a credit, or partial credit, for what you paid the non-resident state. .

Since SD does not have an income tax, you do not have a non-resident return to file. But you still have to pay tax on that income to your home state. Since you paid no SD tax, there is no credit. So, you pay full tax to IA.

Thinking about moving to SD and keeping your current jobs?  In that case you have to file a non resident IA return to pay tax on the wife's IA source income. The year of the move, you would file a part year resident return and the husband's SD income would be taxable by IA up until the date of the move.