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Laws and Rules

Idaho combined reporting

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Court decisions

  • Underwood Typewriter Co. v Chamberlain, 254 U.S. 113 (1920) – apportionment of a single corporation’s income was justified rather than allocating profits based only on activity in a state
  • Bass, Ratcliff & Gretton Ltd. v. State Tax Commission, 266 U.S. 271 (1924) – Apportionment formula allowed to worldwide profits even though state activity reflected a loss
  • Butler Bros. v. McColgan, 17 Cal. 2d 664, 111 Pac. 2d 334, aff’d 315 U.S. 501 (1942) – defined unitary business through unity of ownership, operation, and use and determined unitary business of a single corporation and its various divisions
  • Edison California Stores v. McColgan, 30 Cal. 2d. 472, 183 Pac. 2d 16 (1947) – contribution or dependency test used to determine unitary business and applied to a multi-corporate group
  • Container Corp. of America v. Franchise Tax Board, 463 U.S. 159, 103, S. Ct. 2933 (1983) – explicit approval of worldwide unitary business principle based on flow of value from functional integration, centralized management, and economies of scale. “Rejects geographical or transaction accounting.” Domestic parent
  • Albertson’s Inc. v. Department of Revenue, 106 Idaho 810, 683 P.2d 846 (1984) – Idaho Supreme Court unanimous approval of the combined reporting method including distributive share of 50% interest in partnership’s income, deductions and apportionment factors
  • Allied-Signal Inc. v. Director Division of Taxation, 504 U.S. 768 (1992) – provided that apportionment is appropriate when income from an asset serves an operational rather than an investment function in the taxpayer’s business
  • Barclays Bank PLC v. Franchise Tax Board of California, 512 U.S. 298 (1994) – upheld unitary business principle when there exists a foreign parent

Income and Factors

Net operating losses and capital losses

Each corporation included in the combined report that is required to file an Idaho income tax return must separately compute its Idaho net operating loss (NOL). Each corporation’s NOL carryback and carryover is applied to its share of the combined income apportioned to Idaho for each tax year.

Capital losses incurred in a year when the corporation didn’t have an Idaho connection aren’t deductible, unless the corporation was part of a unitary group with at least one member of the group taxable by Idaho for that tax year.

Partnership interests

If a corporation is a member of a partnership or joint venture, the corporate partner includes its share of partnership income in apportionable income. Additionally, the corporate partner includes its share of partnership sales (if using three-factor method, property, payroll, and sales), after intercompany eliminations, in the numerators and denominators of the corporation’s factors.

The corporation isn’t required to hold more than a 50% interest in the partnership or joint venture to include its share of partnership income and factor attributes in the combined report. A partnership interest is included in the combined report if the operation of the partnership or joint venture is an extension of the unitary business of the partner or venture member.

Different accounting periods

You must determine the income of all corporations in a combined group using the same accounting period. If a parent-subsidiary relationship exists, the income of all corporations generally is determined based on the parent’s tax year. If there isn’t a common parent corporation, as in the case of brother/sister corporations, the income of the related corporations generally is determined based on the tax year of the corporation required to file an Idaho return and expected to have the largest amount of Idaho income.

In converting the income of a member of the related group to conform to the tax year of the parent or other related corporation, income generally is determined based on the number of months falling within the applicable tax year. For example, if a parent corporation operates on a calendar year basis and a subsidiary includible in a combined report operates on an April 30 fiscal year, assign 8/12 of the subsidiary’s income of the current fiscal year and 4/12 of the unitary income of the preceding fiscal year to include a full 12-months’ income in the combined report. If this calculation results in using the income of a corporation whose fiscal year hasn’t yet closed, you may need to make an estimate based on available information and amend the return later.

After you’ve determined the combined income of the unitary group of corporations based on a common taxable year, next you’ll need to apportion the combined income to Idaho by applying the apportionment formula. Compute the factors of the formula using the same common tax year as you used to compute unitary income.

Special industries

If part of your business is in one of the following industries, you must use special apportionment rules in computing the apportionment factors:

  • Airlines
  • Construction Contractors
  • Financial Industries
  • Publishers
  • Railroads
  • Television and Radio Broadcasters
  • Trucking Companies

Idaho typically follows the Multistate Tax Commission regulations for these industries, with a few exceptions discussed in the Idaho Income Tax Administrative Rules.

Property Factor

The property factor is a fraction.

  • The numerator is the average value of real and tangible personal property owned or rented and used in Idaho during the tax year to produce apportionable income.
  • The denominator is the average value of all the taxpayer’s real and tangible personal property owned or rented and used during the tax year to produce  apportionable income.

Include: Property that’s used or capable of being used during the tax year in the regular course of the taxpayer’s trade or business

Exclude:

  • Property used to produce nonapportionable income
  • Property under construction

How to value property

Value property that the taxpayer owned at its original cost. Original cost is the basis of the property for federal income tax purposes (before any federal adjustments) when the corporation acquired it. Adjust original cost for subsequent capital additions or improvements, special deductions, or partial disposition because of sale, exchange, abandonment, or other cause. Depreciation doesn’t reduce original cost.

Average value of property

Calculate the average value of property that the taxpayer owned by averaging the values at the beginning and ending of the tax year. The Tax Commission might require or allow the averaging of monthly values to reflect the average values properly.

Rented property

Value rental property at eight times the net annual rental rate. The net annual rental rate is the total rents paid for the property minus the aggregate annual subrental rates that subtenants paid. You can’t deduct subrents when they’re apportionable income.

Payroll Factor

The payroll factor is a fraction.

  • The numerator is the Idaho compensation paid during the tax year.
  • The denominator is the total compensation paid during the tax year.

Exclude:

  • Compensation connected with the production of nonapportionable income

Accounting method

Determine the total amount paid to employees based on the taxpayer’s accounting method: Accrual method or cash method

Accrual method:

  • All compensation properly accrued is deemed to have been paid.

Cash method:

  • If you must report compensation under the cash method for unemployment compensation purposes, you can use the cash method to include compensation paid to employees in the payroll factor.

Compensation

Compensation includes:

  • Wages
  • Salaries
  • Commissions
  • Any other form of payment to employees for personal services

Exclude: Payments to an independent contractor or any other person not properly classifiable as an employee.

Compensation is paid in Idaho if any one of the following tests is met:

  • The individual’s service is performed entirely inside Idaho.
  • The individual’s service is performed both inside and outside Idaho. But, the service performed outside Idaho is incidental to the individual’s service in Idaho.
  • Some of the service is performed in Idaho, and:
    • The base of operations—or the place where the service is directed or controlled—is in Idaho.
    • The base of operations—or the place where the service is directed or controlled—isn’t in any state in which some part of the service is performed, but the individual’s residence is in Idaho.

Sales Factor

The sales factor is a single-weighted sales factor for all taxpayers.

The sales factor is a fraction.

  • The numerator is the gross receipts derived during the tax year from transactions and activities attributable to Idaho in the regular course of the taxpayer’s trade or business.
  • The denominator is the total gross receipts derived during the tax year from transactions and activities everywhere in the regular course of the taxpayer’s trade or business.

Include: All gross receipts derived from transactions and activities in the regular course of trade or business.

Exclude: Receipts derived from the production of nonapportionable income.

Gross receipts

Gross receipts are gross sales minus returns and allowances. The sales factor includes gross receipts from services and all other gross receipts such as interest, dividends, rents, royalties, gross receipts from the sale of property and other income derived by the taxpayer in the regular course of business.

Gross receipts from sales of tangible personal property are assigned to Idaho if:

  • Property is delivered or shipped to a buyer in Idaho. This is regardless of where property ownership transfers from the seller to the buyer. This is also regardless of  other conditions of sales.
  • Property is shipped from an office, store, warehouse, factory or other place of storage in Idaho and one of these is true:
    • The taxpayer isn’t taxable in the state of the buyer (throwback sales).
    • The buyer is the U.S. government.

If gross receipts don’t fairly represent the extent of your business activity in Idaho, you can request or might be required to use another method to obtain an equitable result. Income from services is attributable to this state if the taxpayer’s market for the sales is in this state (See Idaho Code section 63-3027(13)).

Although the following amounts might be apportionable income, gross receipts don’t include:

  • The repayment, maturity, or redemption of the principal of a loan, bond, mutual fund, certificate of deposit, or similar marketable instrument
  • The principal amount received under a repurchase agreement
  • The proceeds from issuing your own stock or from the sale of treasury stock
  • Damages or other amounts received from litigation
  • Property that an agent acquired on behalf of another
  • Tax refunds or other tax benefit recoveries
  • Pension reversions
  • Contributions to capital
  • Income from the forgiveness of indebtedness
  • Amounts realized from exchanges of inventory that the Internal Revenue Code (IRC) doesn’t recognize

Worldwide vs. Water’s Edge

Worldwide combined reporting

Idaho requires use of the worldwide filing method for all corporations unless you’ve made the water’s edge election (discussed in the next section). Under this method, you must include the income or loss and apportionment factor attributes of all unitary corporations with more than 50% common ownership. This includes those businesses incorporated outside the United States.

Corporations incorporated in the United States or included in a consolidated federal corporation income tax return must include federal taxable income in the combined report. You can choose one of the following amounts to include in apportionable income for your foreign corporations. The method you select must be used for all the foreign corporations and adjusted for Idaho additions and subtractions to taxable income required by Idaho Code.

  • Financial net income before income taxes shown on consolidated financial statements filed with the U.S. Securities and Exchange Commission (SEC). If the unitary group isn’t required to file with the SEC, it can use the profit or loss statement prepared for reporting to shareholders and subject to review by an independent auditor.
  • Restated financial net income of each foreign corporation to a federal income tax basis. If you choose this option, you must make all book-to-tax adjustments for each foreign corporation. You also must apply the adjustments consistently in each year that the worldwide method applies. These adjustments are subject to the recordkeeping requirements of the Internal Revenue Code (IRC) and Treasury regulations for domestic corporations.

Water’s edge election

Corporations doing business inside and outside of Idaho can elect to file on a water’s edge basis instead of a worldwide basis. If you choose this election, exclude your foreign corporations from the combined report unless they’re included in a federal consolidated return.

With the water’s edge method, you exclude from apportionable income the portion of dividends received or deemed received from foreign corporations. The percentage of dividends you exclude depends on whether you file a domestic disclosure spreadsheet.

  • If you file the spreadsheet, you receive an 85% dividend exclusion. You must file the spreadsheet within six months of filing the original return.
  • If you don’t file the spreadsheet, you receive an 80% dividend exclusion. Check the “Yes” box on Idaho Form 41, line 8b, to opt out of filing the spreadsheet. You must make this election annually.

You must make the water’s edge election on an original return. You can’t make the election on an amended return.

After making the election, you must continue using the water’s edge method. You can change your election only if you receive written permission from the Tax Commission. See Form 14, Idaho Water’s Edge Election and Consent Form, for instructions.

FormDescription
FORM 14Water's Edge Election and Consent
FORM DDS‑1Idaho Domestic Disclosure Spreadsheet - Affiliated Corporations
FORM DDS‑2 (page 1)Idaho Domestic Disclosure Spreadsheet - Nonbusiness Income/Loss
FORM DDS‑2 (page 2)Idaho Domestic Disclosure Spreadsheet - Nonbusiness Income/Loss
FORM DDS‑2AIdaho Domestic Disclosure Spreadsheet - State Filing Requirements
FORM DDS‑2BIdaho Domestic Disclosure Spreadsheet - Combined Filing Group
FORM DDS‑2CIdaho Domestic Disclosure Spreadsheet - Apportionment Percentage
FORM DDS‑2DIdaho Domestic Disclosure Spreadsheet - Nonbusiness Income/Loss
FORM DDS‑2EIdaho Domestic Disclosure Spreadsheet - Destination Sales
Instructions for Domestic Disclosure Spreadsheets

Laws and rules

Apportionable Income vs. Nonapportionable Income

The United States Constitution requires a relationship between an activity and a state before the state can tax the activity. If the taxable activity is part of a unitary business, the combined income of the unitary business is subject to apportionment.

Apportionable income is sourced to the various states/countries where a business is conducted compared to nonapportionable income, which is specifically allocated to a state or country. Therefore, it’s important to understand the difference between the two.

Apportionable income can be any type or class of income and can result from any activity that meets either the “transactional test” or the “functional test”. For example, apportionable income can include interest, dividends, and gains on investments of working capital, as well as investment income on sinking funds, and income from other investments needed to satisfy creditors or future needs of the business. 

The “transactional test” provides that if income arises from a transaction or activity in the regular course of your business, the income is apportionable income. For example, interest and gains derived from investments of working capital are transactions in the regular course of business.

The “functional test” provides that if you acquire, manage, or dispose of property and this activity is an “integral part” of your regular trade or business operations, the income from the activity is apportionable income. For example, a manufacturing company acquires, uses, and disposes of tangible as well as intangible assets as part of its regular operations. Although the sale of a manufacturing facility may occur infrequently, this type of transaction does occur during the normal course of operating a manufacturing business.

Nonapportionable income is all income other than apportionable income. It’s allocated to the specific state where it was earned. If the income is from intangible assets, it’s typically allocated to the state of the corporation’s commercial domicile or the principal place from which the trade or business is directed or managed. Nonapportionable income is also referred to as allocable income and must be offset by the deductions relating to its production.

Filing Combined Reporting Returns

Combined reporting contrasted with consolidated returns

For federal purposes, a unitary group may be filing a federal consolidated return. Idaho law doesn’t provide for the filing of a consolidated return. Instead, a unitary group must use the combined reporting method. The combined report is often confused with a consolidated return, but they aren’t the same.

The combined reporting method doesn’t refer to whether the unitary group files one or more returns. If you file a single return for the group, this is called a group return, and discussed in the next section.

Some differences between a combined report and a federal consolidated return include the following:

Idaho Combined ReportFederal Consolidated Return
Computation of tax liabilityEach corporation required to file in Idaho computes its own Idaho tax liability, net operating loss, and creditsThe affiliated group computes a single income tax liability for the group
Who can be includedUnitary group – Parent-subsidiary and brother-sister corporation groupsAffiliated group – Only parent-subsidiary groups
Common ownership requirementMore than 50%80% or more

Group return

For convenience, Idaho allows a unitary group to file one Idaho “group return” for the entire unitary group. Group returns don’t ignore the corporate identities of the individual corporations. Each corporation is considered a taxpayer even though it’s part of a unitary group and regardless of whether a group return is filed or each corporation files its own Idaho income tax return.

Idaho returns must include copies of the federal returns and spreadsheets detailing the information identified in the following table:

ItemIf Filing a Group ReturnIf Filing Separate Returns for Each Idaho Filer

  • Federal taxable income detail

  • Intercompany eliminations

  • State adjustments to federal taxable income

  • Income/loss allocated outside Idaho


Forms 41 and 42 Include total amounts for the combined group – provide by-company spreadsheets for each corporation in the unitary groupSame as if filing a group return

  • Income/loss allocated to Idaho

  • Idaho taxable income

  • Idaho income tax

  • Idaho net operating loss deduction

  • Idaho credits earned/allowed

  • Permanent Building Fund tax

  • Total tax due


Form 41 includes total amounts for all Idaho filers – provide spreadsheets for each Idaho filerForm 41 includes amounts only for filing corporation – provide spreadsheets for each filing corporation

  • Idaho apportionment factor


Form 42 includes total amounts for all Idaho filers – provide Form 42A By-Company Apportionment Factor Details listing all corporations listed as transacting in Idaho.Form 42 includes amounts only for filing corporation – provide Form 42A By-Company Apportionment Factor Details listing all corporations listed as transacting in Idaho.

Combined Reporting

This page helps businesses understand how to calculate their Idaho income tax. It applies to unitary businesses, as explained below, that operate in Idaho and in other states or countries.

Unitary business

If your business is conducted through more than one division or commonly controlled corporation, it might be considered to be a “unitary business.” A business is unitary if the activities or operations that one division or corporation conducts benefit, or are integrated with, depend on, or contribute to operations that another division or commonly controlled corporation conducts. This connection produces a sharing or exchange of value among the businesses and a significant flow of value to the separate parts. If part of this value flows to or from the business conducted in Idaho, the separate parts will be considered one unitary business for determining Idaho taxable income, and all the incomes of the entities in the unitary business will be added together.

The unitary business principle was first developed in the 1870s when local governments were imposing a property tax on railroads operating within their jurisdictions. The courts during that time recognized that the value of the railroad system was more than the cost of rails and ties located within a particular state. The system connected two distant points and represented an integrated economic unit, of which each state could claim its appropriate share. All of the railroad’s property was valued as a single unit and a portion of the unit’s value was assigned to each state by a mathematical formula. The application of the unitary approach evolved when states started to impose a tax measured by the income of corporations.

There are several tests for determining unity, many developed from court decisions. Some of these are listed in the Laws and Rules section. Idaho applies the unitary business principle to the fullest extent that the U.S. Constitution allows. This allows Idaho to apportion the business income of a unitary business as long as there is some flow of value with the business conducted in Idaho.

Combined report

We use the terms “combined report” or “combined reporting method” to refer to the series of calculations a unitary business uses to determine the amount of business income attributable to each member of the unitary group that must file in Idaho. Combined report doesn’t mean the return filed in Idaho, so we’ll use the term combined reporting method throughout this guide.

Only C corporations can use the combined reporting method. S coporations can’t use it. 

Apportionment

We use apportionment to prorate business income or loss to Idaho based on its activities in Idaho compared to its activity everywhere. Single-sales factor is the default apportionment method. You can elect to use a three-factor method if you’re an electrical corporation, telephone corporation, or communications corporation as Idaho Code defined by Idaho Code, or in a special industry defined by the Multistate Tax Commission special industry rules that Idaho adopted. An Idaho factor is calculated for each activity. The factors are then used to calculate the Idaho apportionment factor, which is applied to the business income of the unitary business to determine the portion earned in Idaho.

Allocation

We use allocation to assign nonapportionable income to the state or other country where it was earned. In some cases this may be a corporation’s commercial domicile, which is the principal place where the taxpayer’s trade or business is directed or managed.

Example

Combined Reporting Example

Capital Gains

A capital gain occurs when you sell or exchange a capital asset for more than the cost or other basis. A capital gain can be short-term (one year or less) or long-term (more than one year), and you must report it on your income tax return.

A capital loss occurs when you sell or exchange a capital asset for less than the cost or other basis. 

Idaho allows a capital gains deduction for qualifying property located in Idaho.

Forms

Form CG – Capital Gains Deduction and Instructions

Qualifying property

Gains from the sale of the following Idaho property qualify for the capital gains deduction:

  • Real property. The property must be held for at least 12 months and sold on or after January 1, 2005. Real property sold before January 1, 2005, must have been held for at least 18 months. For purposes of this deduction, “real property” means land and includes easements, grazing permits, and any other property defined in section 1250(c) of the Internal Revenue Code.
  • Tangible personal property. The property must be used in a revenue-producing enterprise and held for at least 12 months. A revenue-producing enterprise means:
    • Producing, assembling, fabricating, manufacturing, or processing any agricultural, mineral, or manufactured product;
    • Storing, warehousing, distributing, or selling at wholesale any products of agriculture, mining, or manufacturing;
    • Feeding livestock at a feedlot;
    • Operating laboratories or other facilities for scientific, agricultural, animal husbandry, or industrial research (developmental or testing).
  • Cattle and horses. The animals must be held for at least 24 months.
  • Livestock used for breeding. The livestock must be held for at least 12 months.
  • Timber. The timber must be grown in Idaho and held for at least 24 months.

Property that doesn’t qualify

Gains from the sale of the following don’t qualify for the deduction:

  • Real or tangible personal property not located in Idaho
  • Tangible personal property not used by a revenue-producing enterprise
  • Intangible property. Some examples of intangible property include, but are not limited to:
    • Stocks and bonds;
    • Interests in a partnership, LLC, or S corporation.

Idaho’s capital gains deduction

Idaho allows a deduction of up to 60% of the capital gain net income from the sale or exchange of qualifying Idaho property. For tax year 2001 only, the deduction was increased to 80% of the qualifying capital gain net income. You must complete Form CG to compute your Idaho capital gains deduction.

Laws and rules

Idaho Medical Savings Account

An Idaho Medical Savings Account (MSA) allows you to save for medical expenses and long-term care costs while reducing the amount of Idaho individual income tax that you owe.

Contributions to a federal MSA or health savings account (HSA) don’t qualify for this Idaho deduction. 

Qualifying accounts and expenses

For your account to qualify as an MSA, the financial institution must include the words “Medical Savings Account” or the letters “MSA” on your statement as well as in the name, title, description, or designation of the account.

You can use this account to pay only eligible medical, vision, and dental expenses (as defined by the Internal Revenue Code), along with health insurance and supplemental Medicare premiums and long-term care expenses.

In addition, transportation to and from a medical appointment is an eligible expense. The amount can be based either on your actual cost (e.g. gas, oil, parking) or on the optional standard medical mileage rate that the Internal Revenue Service (IRS) sets.

Withdrawals for ineligible expenses

You must pay tax on any funds you withdraw from the MSA to pay for something other than an eligible medical expense.

Also, if you’re younger than 59 1/2 years old, funds withdrawn to pay for something other than eligible medical expenses are subject to a 10% penalty.

Financial benefits

You can deduct contributions to an Idaho MSA from your adjusted gross income when you file an Idaho income tax return. A single person can contribute up to $10,000 each calendar year, and a married couple filing jointly can contribute up to $20,000.

Interest earned on this account is also deductible.

You take these deductions only on your Idaho individual income tax return, not your federal (IRS) tax return.

Using your MSA

Your funds must be in the MSA before you pay the expense.

If you mistakenly deposit money to your MSA, you can withdraw it within 30 days with no tax consequences.

If you mistakenly withdraw money from your MSA, you can redeposit the money within 30 days with no tax consequences. Because it’s a reimbursement, it’s not included in your contribution dollar limit.

Insurance reimbursement

If you take money from your MSA to pay a medical bill but then your insurance company reimburses you for that expense, you must deposit the reimbursement into your MSA within 60 days of the date you received the reimbursement.

  • If you redeposit the funds into the MSA, it’s not included in your contribution dollar limit because it’s a reimbursement.
  • If you don’t redeposit the funds, you must include them in taxable income, and you might owe a penalty. 

Working with your financial institution

Your financial institution is only required to send a statement showing the amount of interest the account earned, as it does for any other account. The account holder is responsible for keeping accurate records of contributions, distributions, and rollovers.

If you choose, you can move your MSA from one financial institution to another as long as you reinvest the money from the old MSA in a new MSA for the benefit of the same account holder within 60 days of the withdrawal.

Death of the account holder

If the beneficiary is a surviving spouse, the account will continue to qualify as an MSA, and the spouse can use it. If the beneficiary isn’t a surviving spouse, the account no longer qualifies as an MSA.

The beneficiary (including an estate) must include in income the amount in the MSA — less any of the decedent’s medical expenses that the beneficiary paid within one year of the death.

Tax deduction information

If you pay health insurance premiums from your MSA, you can’t also claim the Idaho deduction for health insurance premiums for those contributions.

If your health insurance premiums are deducted from your wages on a pre-tax basis, you can’t withdraw those premiums from your MSA to reimburse yourself. Review your W-2 form information or check with your payroll office if you’re unsure if your insurance premium deductions are pre-tax.

You can claim on your Schedule A the qualifying expenses you’ve paid from your MSA, both for your federal and Idaho tax return filings.

Laws and rules

 

IDeal Idaho College Savings Program

IDeal is Idaho’s official 529 college savings program, created as a qualified tuition program under Internal Revenue Code section 529.

IDeal helps families save money for education expenses through an Idaho 529 account. Eligible expenses include K-12 tuition, apprenticeships, trade schools, and higher education costs such as tuition, mandatory fees, room and board, books, supplies, computer software, and internet access, as well as limited student loan repayment. IDeal can be used wherever the student is – not just in Idaho.

Each 529 account has an account owner and a designated beneficiary. The owner is the person who opened the account. The beneficiary is the student receiving benefits from the account. You can open an account to pay for your own higher education or for someone else’s. Any U.S. citizen or resident alien, 18 or older, can open an account.

Anyone, including family and friends, can contribute to an Idaho college savings program. Contributions to an Idaho 529 account provide a tax benefit. IDeal’s “Quick Facts on 529s” explains more about the features of a 529 plan.

Idaho College Savings Program tax deduction

If you contribute to an IDeal account, you can claim an Idaho income tax deduction of up to $6,000 per year with the filing status of single or head of household or up to $12,000 with the filing status of married filing jointly. You can subtract the contribution from your Idaho taxable income even if you don’t itemize.

Claim the deduction on Idaho Form 39R (for Idaho residents) or Idaho Form 39NR (for nonresidents and part-year Idaho residents). You only get the deduction if you file an Idaho income tax return.

  • You must contribute on or before December 31 of a calendar year for it to be deductible in that taxable year.
  • You can’t take the contribution as a federal income tax deduction.
  • Neither Idaho nor the federal government will tax the amount the account earns while the funds remain in the account.
  • Contributions to a 529 program that a state other than Idaho administers aren’t eligible for a deduction on the Idaho return.
  • Gift tax can apply to 529 contributions.

Employer tax credit

Employers who contribute to their employees’ IDeal – Idaho 529 College Savings Program accounts receive an Idaho state tax credit. The credit is 20% of the employer’s contribution, capped at $500 per employee per year.

Employer contributions to an employee’s 529 account count as additional income for the employee. Contributions appear as income on the employee’s W-2 and are subject to taxes and withholdings. Employees can deduct employer contributions made on their behalf from their Idaho state income tax.

Qualified withdrawals

You can use qualified withdrawals from a 529 account to pay for the following expenses (see Internal Revenue Code 529(e)(3)):

K-12. Any public, private, or religious school:

  • Tuition payments up to $20,000 per year per student.

Higher education. You can use 529 funds at any higher education institution in the country, not just Idaho, including:

  • Two or four-year colleges or universities.
  • Vocational/technical schools.
  • Career retraining schools.
  • Dual credit courses.
  • Graduate schools.

Eligible higher education expenses include:

  • Tuition and fees for students attending higher education.
  • Books, supplies, and equipment.
  • Expenses for special-needs services for a special-needs beneficiary incurred in connection with enrollment or attendance at an eligible educational institution.
  • Expenses for room and board for students enrolled at least half-time. The expenses for room and board qualify only to the extent that they aren’t greater than the following two amounts:
    • The allowance for room and board, determined by the eligible educational institution, included in the cost of attendance (for federal financial aid purposes) for a particular academic period and living arrangement of the student.
    • The actual amount charged if the student is residing in housing that the eligible educational institution owns or operates. Contact the educational institution for qualified room and board costs.
  • The purchase of computer or related peripheral equipment, computer software, or internet access and related services, if the beneficiary will use them primarily during the time they’re enrolled at an eligible educational institution. (This doesn’t include expenses for computer software for sports, games, or hobbies unless the software is predominantly educational.)

Apprenticeship programs. Expenses required for participation in a program registered and certified with the Secretary of Labor under the National Apprenticeship Act.

Student loan repayments. Principal or interest on any qualified education loan of the beneficiary or a sibling of the beneficiary, up to $10,000 per individual.

Note: If a beneficiary doesn’t use the money in a 529 account, the account owner has options:

  • Let the account continue to grow tax deferred.
  • Change the beneficiary by transferring it to a family member of the current beneficiary.
  • Roll over the 529 funds into a Roth IRA. The account must be open for at least 15 years.
  • Take a taxable, non-qualified withdrawal (see below).

Non-qualified withdrawals

If you withdraw money from a 529 account and don’t use it to pay for qualified education expenses of the designated beneficiary, the recipient of the money must add all amounts withdrawn to their Idaho taxable income (if not included in federal adjusted gross income) in the year of the withdrawal. This addition to Idaho taxable income may include amounts contributed to the account, as well as earnings.

The recipient makes the addition on Idaho Form 39R (for Idaho residents) or Idaho Form 39NR (for nonresidents or part-year residents of Idaho).

A non-qualified withdrawal is an account withdrawal that isn’t one of the following:

  • A qualified withdrawal (see above).
  • A withdrawal paid to a beneficiary of the beneficiary (or the estate of the beneficiary) on or after the death of the beneficiary.
  • A withdrawal due to the disability of the beneficiary.
  • A withdrawal because the beneficiary receives a qualified scholarship or tuition assistance, if the withdrawal doesn’t exceed the amount of the scholarship or tuition assistance.
  • A withdrawal due to the use of education credits as allowed under federal income tax law.
  • A refund from an eligible educational institution that’s re-contributed to a qualified tuition program if the re-contribution is made no later than 60 days after the date of the refund and doesn’t exceed the refund amount.

Note: We’re in the process of updating Tax Consequences of Federal and Idaho College Savings Program Withdrawals, a document that provides more examples of when a recipient must add account withdrawals to Idaho taxable income.

Rollovers to another qualified tuition program

If you roll funds from an Idaho college savings account to a qualified program that another state or qualified ABLE program operates, you must make an addition to your Idaho taxable income. The amount added back is limited to your contributions deducted in the year of transfer and the prior tax year.

Other tax incentives for higher education

Some federal tax credits and deductions might be available if you’re saving for or paying higher education costs. Review IRS Publication 970.

For more information

For more information about qualified tuition programs, see IRS Publication 970.

For more information about the Idaho College Savings Program, visit IDeal’s website or call (866) 433-2533.

An available disclosure statement describes investment objectives, risks, charges, expenses, and other important information. Because investing in IDeal is an important decision for you and your family, you should read and consider the statement carefully before investing.

The College Savings Program Board administers IDeal. Ascensus Broker Dealer Services LLC (ABD) is the distributor of IDeal. ABD, the program manager, and its affiliates are responsible for day-to-day operations, including investment advisory, recordkeeping, and administrative services.

Claim of Right Income Repayments

If you had to repay over $3,000 that you included in your taxable income in an earlier year, you may be able to claim a credit or deduction on your Idaho return.

You must have claimed a claim of right deduction or credit on your federal return under IRC section 1341.

Claim of Right credit

If you claimed a credit on your federal return, follow the instructions below to calculate your Idaho credit. To calculate the credit, you’ll need the following:

  • Idaho tax tables from the year the income was taxed.
  • Form 40 filers:
    • A copy of your Idaho tax return for the year the income was taxed, plus any amended returns or adjustment notices.
  • Form 43 filers:
    • A copy of your Idaho tax return for the year the income was taxed, plus any amended returns or adjustment notices.
    • A blank Form 43 for the year the income was taxed. You must complete the Form 43 for the year the income was taxed and reduce your Idaho and federal income by the repaid amount. This is the only difference between this return and the return you filed (including amendments or adjustments). Your Idaho percentage will likely change. Don’t adjust any other items on the return, but recalculate amounts using the revised Idaho percentage. Complete the return through line 42. Don’t file this return. Use this return only for the purpose of calculating the claim of right credit.

If you repaid income from more than one tax year, complete a separate credit worksheet for each tax year to determine the credit for each tax year. Then claim the total of all credits on your return the year you made the repayment.

Claim of Right credit worksheet

1

Enter your Idaho taxable income, as amended or adjusted, for the year the income was taxed: Form 40, line 19.
Form 43 filers, skip to line 4

2

Enter the amount of income you repaid in the tax year for which you’re calculating the credit.

3

Line 1 minus line 2. This is your Idaho taxable income without the repaid income.

4

Enter your Idaho tax before credits from the return you filed, as amended or adjusted: Form 40, line 21 or Form 43, line 42.

5

Form 40 filers — Enter the tax from the tax tables for the Idaho taxable income on line 3. Use the tables from the year the income was taxed. This is what your Idaho tax before credits would have been without the income you repaid.
Form 43 filers — Enter your Idaho tax before credits from the return without the income that was repaid: Form 43, line 42.

6

Line 4 minus line 5. This is your Idaho claim of right credit.

The amount from line 6 is included on the Claim of Right credit line on Form 40 or Form 43.

Don’t include this worksheet with your Idaho return. Keep it with your tax records.

Claim of Right deduction

If you claimed a federal deduction for the repayment on your federal return, you have a choice of how to claim it on your Idaho return. The federal deduction can flow through to your Idaho return or you may claim the credit instead. You can choose the option that benefits you the most. If you let the federal deduction flow through, you don’t need to do anything further on your Idaho return.

If the credit results in less tax, you can claim the Idaho credit. If you choose to take the Idaho credit, you must add back the federal deduction on your Idaho return.

To see which option is best, first calculate your credit on the credit worksheet. Then, if required, complete the addition worksheet below. Finally, complete the deduction worksheet for your form type.

Federal deduction add-back

The addition on your Idaho return is generally equal to the deduction on your federal return. If you claimed the federal deduction on Schedule A, your addition may be less.

Use the worksheet below to figure the Idaho addition required when taking the claim of right deduction on federal Schedule A and the claim of right credit on your Idaho return. Unless otherwise stated, all references are to the tax year when you repaid the income.

Worksheet for federal deduction add-back — Schedule A

1

Form 40 filers — Enter your net Idaho itemized deductions from line 15.
Form 43 filers — Enter your net Idaho itemized deductions from line 35.

2

Enter the federal deduction for claim of right included on federal Schedule A, line 28.

3

Line 1 minus line 2. This is your Idaho itemized deductions without the claim of right deduction.

4

Enter your Idaho standard deduction: Form 40, line 16 or Form 43, line 36.

5

Is line 3 larger than line 4? If yes, enter zero. If no, enter line 4 minus line 3.

6

Line 2 minus line 5. This is your Idaho addition if you take the Idaho claim of right credit instead of allowing the deduction to flow through.

  • Form 40 filers, enter the amount from line 6 as an “Other Addition” on Form 39R, Part A, line 6.
  • Form 43 filers, subtract the amount on line 6 from the total on Form 43, line 33.

Don’t include this worksheet with your Idaho return. Keep it with your tax records.

Deduction comparison worksheets

If you claimed a deduction on your federal return for your repayment, use the appropriate worksheet below depending on the type of form you’re filing for the year of the repayment.

The worksheet will show if you benefit more from allowing the federal deduction to flow through or claiming the credit for Idaho. Unless otherwise stated, all references are to the tax year when you repaid the income.

Deduction worksheet for Form 40 filers

Complete your Idaho Form 40 through line 19 (for the tax year the repayment was made), allowing the federal deduction to flow through to your Idaho return, and then complete this worksheet.

1

Enter your Idaho taxable income from Form 40, line 19.

2

If you completed the add-back worksheet, enter the amount from line 6 of the worksheet. Otherwise, enter the amount of the claim of right deduction from your federal return.

3

Add lines 1 and 2. This is your Idaho taxable income with the required addition when claiming the credit.

4

Calculate the tax using the tax tables for the taxable income on line 3. Be sure to use the tax tables for the year you repaid the income.

5

Enter the claim of right credit from line 6 of the credit worksheet.

6

Line 4 minus line 5. This is your Idaho tax before credits minus the claim of right credit.

7

Calculate the tax for the Idaho taxable income on line 1. This is your Idaho tax before credits with the deduction.

Compare lines 6 and 7.

  • If line 7 is the same or less than line 6, don’t claim the credit on the Idaho return. Instead, allow the deduction claimed on the federal return to flow through to your Idaho return.
  • If line 7 is more than line 6, claim the Idaho claim of right credit. Remember, you must add back the federal deduction to claim the credit.
    If line 7 is more than line 6, the amount from line 2 is included as an “Other Addition” on Form 39R, Part A, line 6. The amount from line 5 is included on the Claim of Right credit line on Form 40, line 48.

Don’t include this worksheet with your Idaho return. Keep it with your tax records.

Deduction worksheet for Form 43 filers

Complete two Idaho Form 43 tax returns for the year you repaid the income. On the first return, add back the federal amount deducted or the amount from line 6 of the add-back worksheet.

If your federal deduction is claimed on Schedule A, the Idaho addition is included on Form 43, line 33. If your federal deduction is claimed elsewhere on the federal return, your addition is entered on Form 39NR, Part A, line 4, with the amount of the deduction claimed in each column. Complete the return to the Idaho tax before credits line (Form 43, line 42).

On the second return, allow the federal deduction to flow through to Idaho and complete the return to the Idaho tax before credits line.

1

Enter the amount from the tax before credits line from the first return. This is your Idaho tax before credits after adding back the federal deduction.

2

Enter the claim of right credit from line 6 of the credit worksheet.

3

Line 1 minus line 2. This is your Idaho tax before credits minus the claim of right credit.

4

Enter the amount from the tax before credits line from the second return. This is your Idaho tax before credits allowing the deduction to flow through.

Compare lines 3 and 4.

  • If line 4 is the same or less than line 3, don’t claim the credit on the Idaho return. Instead, allow the deduction claimed on the federal return to flow through to your Idaho return.
  • If line 4 is more than line 3, claim the Idaho claim of right credit. Remember, you must add back the federal deduction to claim the credit.

Don’t include this worksheet with your Idaho return. Keep it with your tax records.