On November 4, 2025, the Iowa Department of Revenue (Department) announced¹ that, beginning January 1, 2026, there will be no subtraction from Iowa taxable income for IRC Section 951A income due to changes in the "One Big Beautiful Bill Act" (OBBBA, P.L. 119-21) from global intangible low-taxed income (GILTI) to net CFC tested income (NCTI).

For tax years beginning on or after January 1, 2019, Iowa Code 422.35(12) provided a subtraction for GILTI to the extent included in the Iowa tax base under IRC Section 951A.² Under the OBBBA, effective January 1, 2026, IRC Sections 951A and 250 are revised to include NCTI under IRC Section 951A in the federal tax base subject to a 40% deduction under IRC Section 250.

Because Iowa law provides no exclusion or other adjustment for NCTI, the 60% of NCTI still included in federal taxable income after the application of the IRC Section 250 deduction will be subject to Iowa income tax. As with GILTI, Iowa law does not treat NCTI as a foreign dividend, or as subpart F income, and no portion of NCTI may be used in calculating a corporate taxpayer's Iowa foreign dividends received deduction.

The Department also indicated that the state fully conforms with the federal deduction for foreign derived intangible income (FDII) for 2019 through 2025 and to foreign derived deduction eligible income (FDDEI) for 2026 and after.

Implications

The Department's interpretation of the OBBBA changes make Iowa the latest in a growing number of states that will tax income under IRC Section 951A. It is possible that the Iowa Legislature will address this issue during the next legislative session, which begins on January 12, 2026. However, any changes to the Iowa tax treatment of income under IRC Section 951A will likely result in a fiscal impact in a year with tighter state revenues. EY will continue to monitor changes in this area.