The Complete Guide To Iowa State Income Tax & Payroll Taxes
If you own a business in Iowa, understanding the tax requirements is essential. Our guide walks you through Iowa's state income and payroll tax laws.
From Iowa state income tax to payroll taxes and labor laws, Iowa’s state taxes and regulations can get confusing, whether you’re the employer or the employee. This confusion can even lead to serious consequences, such as fines, penalties, and interest.
Instead of trying to decipher complicated state tax laws, start here with our guide to Iowa income tax and payroll taxes. We’re going to look at everything from Iowa’s state taxes to specific labor laws and even how to calculate payroll taxes. Keep reading to learn more.
Table of Contents
- Does Iowa Have State Income Tax?
- When Is Iowa State Income Tax Due?
- What Is The State Of Iowa Payroll Warrant?
- Federal & State Payroll Taxes In Iowa
- Iowa State Tax Exclusions & Exemptions
- Iowa Labor Laws & Other HR Requirements
- How To Calculate Payroll Taxes In Iowa
- State Of Iowa Payroll Tax & Other Resources
- State Of Iowa Payroll FAQs
Does Iowa Have State Income Tax?
As of 2022, Iowa has state income tax that is split across nine income tax brackets. These rates range from 0.33% to 8.53%. However, tax reforms will be phased in over the next several years to create a flat-rate state income tax of 3.9% in 2026. We’ll go into this in more detail later in this post.
In 2022, Iowa has a graduated corporate tax rate of 5.5% to 9.8%. Over the next few years, this rate will become a flat 5.5% rate after current reforms are phased in.
When Is Iowa State Income Tax Due?
Iowa income tax returns are due on April 30 of the following year. This date is extended if April 30 falls on a weekend or holiday and will be due on the next business day. If you owe taxes, you submit payment with your return. Interest is charged each month that payment is not made after the due date has passed.
As an employer, you are responsible for filing and paying your taxes on time. In most cases, you’ll need to file and pay quarterly. Larger businesses are required to pay monthly or semimonthly. We’ll go into this in more detail later when discussing how to calculate payroll taxes.
What Is The State Of Iowa Payroll Warrant?
State employees may have access to Iowa’s Online Payroll Warrant. This system replaces traditional paper paycheck stubs and allows state employees to view information, such as wages, deductions, tax status information, and leave accruals from their computers. Over 18,000 Iowa state employees currently use this system.
Federal & State Payroll Taxes In Iowa
Business owners in Iowa are required to pay income tax, FICA taxes, federal and state unemployment insurance taxes, property taxes, and other federal, state, and local taxes. Keep reading to learn more about the taxes that are required in the state of Iowa.
Iowa Income Tax
State income tax in Iowa is currently broken into nine income brackets. State tax rates are as follows:
- Up To $1,743: 0.33%
- $1,744-$3,486: 0.67%
- $3,487-$6,972: 2.25%
- $6,972-$15,687: 4.14%
- $15,688-$26,145: 5.63%
- $26,146-$34,860: 5.96%
- $34,861-$52,290: 6.25%
- $52,291-$78,435: 7.44%
- $78,426+: 8.53%
As tax reforms are phased in, these rates will continue to change through 2026. Here’s how the rates will look in 2023:
- Up To $6,000: 4.4%
- $6,001-$30,000: 4.82%
- $30,001-$75,000: 5.7%
- $75,001+: 6.0%
In 2024, rates will change again:
- Up To $6,000: 4.4%
- $6,001-$30,000: 4.82%
- $30,001+: 5.7%
In 2025, here are how income tax rates will look:
- Up To $6,000: 4.4%
- $6,001+: 4.82%
In 2026, reforms will be fully phased in, and the individual income tax in Iowa will be a flat 3.9%
Under these reforms, Iowa will also eliminate inheritance taxes and alternative minimum taxes.
Iowa Corporate Tax
In 2022, corporate tax rates are graduated and range from 5.5% to 9.8%. Over the next few years, these rates will be reduced to reach a flat corporate tax rate of 5.5%.
Under the Federal Insurance Contributions Act (FICA), employees and employers are required to pay FICA taxes. These funds are used to fund Medicare and social security programs.
The social security tax rate is 12.4%, which is split between the employer and the employee. The employer is required to pay 6.2% and to withhold 6.2% from their employees’ earnings. In 2022, the base limit (or maximum wages subject to taxation) for social security wages is $147,000.
The Medicare rate is 2.9%, which is also split between the employer and the employee. The employer must pay 1.45% while also withholding 1.45% from employee paychecks.
Additional Medicare Tax
Any taxpayer that has wages, compensation, or self-employment income exceeding certain thresholds is subject to pay the Additional Medicate Tax. This tax rate is set at 0.9%, and the income thresholds are as follows:
- Single, Head Of Household, Qualifying Widow(er) With Dependent Child: $200,000
- Married Filing Separate: $150,000
- Married Filing Jointly: $250,000
Unemployment Insurance Tax
Iowa employers must pay Federal Unemployment Tax Act (FUTA) taxes. These taxes are 6% of the first $7,000 paid to an employee.
State unemployment insurance tax rates in Iowa can get a bit complicated. That’s because the state uses eight tax rate tables, each with 21 tax rates. Rates range from 0% to 9%. These tables are used to maintain the balance of the UI trust fund. When the balance is low, a higher rate is imposed. When the balance is high, a lower rate is used.
New non-construction employers are assigned a rate no lower than 1%. Since 2003, rates have ranged from 1% to 1.9%. New construction employers are assigned a higher rate, with historical data showing that rates have ranged from 7.5% to 9% since 2003.
While the rates can be a little confusing, the state does send employers a Notice of Tax Rate each November for the rates that will be used in the coming year.
Iowa Property Tax
Business owners in Iowa are required to pay property tax to their county governments. In the state of Iowa, real property, including land, buildings, structures, and improvements, such as fences and paving, are taxed.
A number of total and partial property tax exemptions are available for properties such as agricultural land and art galleries. The property owner must contact the county assessor for more information and to apply for these credits and exemptions.
Iowa Sales Tax
Iowa’s sales tax rate is 6%. However, most cities and unincorporated areas across the state have adopted a local option sales tax. Local option sales tax is applied to tangible personal property, as well as taxable services if the first use of the service occurs (or is expected to occur) within a local option sales tax jurisdiction. The local option tax rate is 1%.
Iowa Use Tax
A use tax is charged when a taxable service is purchased outside of Iowa but will be used within the state. Iowa’s current use tax rate is 6%.
Iowa State Tax Exclusions & Exemptions
There are a few exclusions and exemptions when it comes to withholding Iowa state tax. Iowa taxpayers that do not meet a certain income threshold can claim a tax exemption on their W-4s. This includes:
- Married couples or taxpayers filing head of household that earn $13,500 or less
- Single taxpayers that earn $9,000 or less
- Single taxpayers that earn $5,000 or less that can be claimed as a dependant on another Iowa taxpayer’s return
- Married taxpayers or a head of household that is at least 65 years old and earns a total of $32,000 or less
- A single taxpayer that is at least 65 years old and earns $24,000 or less
Members of the armed forces, military reserves, or national guard on active duty may claim an exemption on federal wages paid during military service. Military spouses may also be eligible for an exemption.
Generally, Iowa’s state tax exemptions follow the same rules as the IRS. However, there are a few notable exceptions. In these situations, compensation is not subject to Iowa withholding:
- Domestic workers and clergy are generally not subject to Iowa withholding; however, any person with an anticipated state tax liability of $200 or more may be required to submit quarterly payments
- Interest and dividends
- Non-residents engaged in film and TV production provided an exemption is filed with the Iowa Department of Revenue
- Agricultural payments to non-residents
- Any wages paid to an Illinois resident working in Iowa are only taxable to Illinois under Iowa and Illinois’ reciprocal agreement
Iowa Labor Laws & Other HR Requirements
There are a number of state-specific laws employers in Iowa must follow, including minimum wage laws, new hire reporting, and child labor laws. Here’s what you need to know about Iowa labor laws and other requirements.
Iowa Minimum Wage
The minimum wage in Iowa is set at $7.25, the same rate as the federal minimum wage. Employers who gross $300,000 or more per year are required to pay the minimum wage. Other employers, including construction entities, schools, hospitals, and public agencies, must also comply with minimum wage laws even if they don’t meet this threshold.
In the state of Iowa, employers are allowed to pay an initial wage of $6.35 per hour for the first 90 days of employment.
There are also a set of minimum wage rules for tipped employees. Any employee that makes at least $30 per month in tips can be paid as little as $4.35 per hour. If the employee’s wages and tips do not average at least $7.25 per hour, the employer is responsible for paying the difference.
Iowa New Hire Reporting
Federal and state laws require all new hires and rehires to be reported to the central registry. This registry is used to find parents that owe child support and expedite child support payments through employment withholdings. This information is also used to identify unemployment fraud.
Under Iowa’s laws, all new hires and rehires 18 and older must be reported within 15 days of being hired or rehired. These reports can be made through Iowa’s Central Employee Registry.
Iowa PTO Policy
Employers in Iowa are not required to provide employees with pay for vacations, sick time, or holidays. However, employers offering these benefits must comply with the terms of their own contracts, policies, and practices.
Iowa Labor Laws
There are a few Iowa labor laws worth noting surrounding overtime, getting fired, breaks, and other workplace issues. Most notably:
- Maximum Hours: There are no limits to how many hours an employee works unless otherwise stated in a contract or employment agreement. There are limitations on the hours worked by children under the age of 16.
- At-Will State: Iowa is an at-will state and can fire an employee without reason, except for illegal reasons (such as discrimination).
- Breaks: There are no laws that make employers provide meal breaks to adult employees. Employers are not required employees for breaks. Minors under the age of 16, union workers, and certain professions may have different rules and regulations.
- Changes Without Notice: As Iowa is an at-will employment state, employers can change schedules, job descriptions, and work locations without notice in most cases.
Child Labor Laws In Iowa
Employers in Iowa must abide by federal child labor laws. Additionally, employers must follow specific child labor laws in Iowa.
Children that are 16 and 17 years old are prohibited from working in dangerous occupations, including but not limited to:
- Mining occupations
- Logging occupations
- Wrecking and demolition
- Dry cleaning and dyeing
- Slaughtering and meatpacking
Additional rules apply to children in Iowa that are 14 and 15 years old. These employees are only allowed to work from 7 AM until 7 PM. This time is extended until 9 PM from June 1 through Labor Day. A break lasting at least 30 minutes is required for any child that works five or more hours in one day.
Children under age 16 are prohibited from working more than eight hours a day or more than 40 hours per week. These limits are reduced when school is in session to a maximum of four hours per day and 28 hours per week.
Iowa Payday Laws
Employees in Iowa must be paid in full within 12 days of the end of the payroll period. This does not include legal holidays and Sundays. Payroll periods must be consistent and can’t be longer than monthly.
If an employee claims reimbursement for expenses, this must be paid within 30 days.
If an employee quits or is terminated by the employer, all compensation due must be paid at the next regular payday.
Disability Insurance In Iowa
The state of Iowa does not require private employers to provide disability insurance to employees. Employees can elect to seek this coverage on their own if not voluntarily provided by their employers.
Workers’ Comp Insurance In Iowa
Most employers in the state of Iowa are required to purchase worker’s comp insurance. As such, most employees are covered by worker’s comp. Employers may apply with the Insurance Commissioner for self-insurance certification in lieu of purchasing workers’ comp insurance.
There are limited exemptions for workers employed in certain agricultural jobs, as well as those employed by a relative.
Sole proprietors, members of an LLC not classified as employees, and partners in a partnership are not covered under Iowa’s worker’s comp laws.
How To Calculate Payroll Taxes In Iowa
Ready to run payroll for the first time? If you’re an employer in Iowa, here’s what you need to know before you get started.
Step 1: Gather Tax Information
To get started, make sure you gather your important payroll and tax information. This may include but isn’t limited to:
- Employee time sheets or other records
- Employee pay rates
- Tax tables
Step 2: Determine Your Pay Schedule
Before you start paying your employees, you need to determine your pay schedule. Common pay schedules include:
- Bi-weekly (every two weeks)
- Semi-monthly (twice a month on specific days, such as the 1st and 15th)
You’ll also need to ensure you comply with all payday laws in your state. For example, in Iowa, you must pay your employees within 12 days of the end of the payroll period.
Step 3: Calculate Hours Worked
Once you’ve determined your pay schedule, you need to calculate the hours each employee worked during that pay period.
For hourly employees, you will need to gather your time cards or use your time-tracking software to determine how many hours were worked. Simply add together the hours worked each day during the payroll period.
It is generally assumed that salaried employees work 40 hours per work, even though this number of hours may increase or decrease from pay period to pay period. There is an exception if you have a contract or employment agreement that specifies a different set of hours.
Step 4: Calculate Gross Pay
Once you know how many hours each employee has worked, it’s time to calculate gross pay. This calculation will need to be performed for each employee.
If your employee is paid by the hour, use this calculation to determine gross pay per payroll period:
Gross Pay = Hours Worked x Hourly Rate
For example, if an employee worked 36.25 hours at a rate of $18 per hour, the employee’s gross pay would be $652.50.
For salaried employees, the math is a little different. Simply take the employee’s yearly salary and divide it by the number of pay periods in a year.
For example, if your pay schedule is bi-weekly, an employee that makes $52,000 would have gross pay of $2,000 per pay period ($52,000 salary divided by 26 pay periods). If your pay schedule is monthly, the employee’s gross pay would be $4,333.33 ($52,000 salary divided by 12 pay periods).
Don’t forget about adding in supplemental wages — that is, the wages paid to an employee outside of regular wages. This includes but is not limited to:
- Back pay
Step 5: Calculate Taxes
Once you’ve calculated gross wages, the next step is to calculate federal, state, and local taxes. You can do this manually by using IRS tax tables, Iowa’s income tax tables, and other resources, or you can simplify the calculations using payroll software (more on that in a minute).
The taxes you will need to withhold from your employees’ pay include:
- Federal, state, and local taxes
- Social security taxes
- Medicare taxes
To calculate payroll taxes, you need to convert the tax rates to numbers expressed as decimals. Simply divide the tax rate by 100 to get this number. For example, dividing the 6.2% social security tax rate by 100 gives you 0.062.
Next, multiply this converted number by the employee’s gross wages. If an employee’s gross pay is $1,350, their portion of social security taxes would be $83.70.
Don’t forget that you will need to calculate all taxes for every employee.
Step 6: Calculate Deductions
In addition to calculating tax deductions, you also want to calculate pre-tax and post-tax deductions.
Pre-tax deductions are calculated before withholding taxes and include:
- Employee and employer retirement contributions
- Employer-sponsored health insurance
- Health savings accounts
- Supplemental insurance
Post-tax deductions are taken out of a paycheck after taxes are deducted. These include:
- Roth 401(k) contributions
- 529 savings plans
- Wage garnishments
Once all taxes and deductions are calculated and subtracted from gross pay, this gives you the employee’s net pay, also known as take-home pay.
Step 6: Run Payroll
After completing your calculations, it’s time to run payroll. You can either cut checks or initiate a direct deposit, depending on your business’s policies and/or the preferences of your employees.
If you want to simplify the entire process, you can subscribe to payroll software. There are numerous benefits to payroll software, including automatic tax and deduction calculations, automated payroll options, direct deposit, and more. While payroll software is an investment, it can save hours each payroll period and can eliminate potentially costly mistakes. If you’re interested in payroll software, start your search with our picks for the best payroll software for small businesses.
Step 7: File & Pay Payroll Taxes
Although you won’t take this step every time you run payroll, this is a step that will have to be performed several times a year. It’s also extremely important, as failure to file and pay payroll taxes comes with steep penalties.
In the state of Iowa, you will file and pay payroll taxes quarterly, monthly, or semimonthly.
To file quarterly, you must have less than $6,000 tax per year. Due dates for quarterly returns are as follows:
- April 30
- July 31
- October 31
- January 31
If any date falls on a weekend or holiday, payment will be due on the next business day.
Use Form 44-095B to submit payments to the Iowa Department of Revenue.
A Verified Summary of Payments (VSP) report will also need to be filed by February 15 of the following year.
For taxes of $6,000 to $120,000 per year, you will file monthly. Semimonthly payments are made for taxes exceeding $120,000.
When submitting payment, don’t forget to include your own payments, in addition to the taxes withheld from your employees’ paychecks. You can submit forms and payments by mail, or you can use EasyPay Iowa through the Iowa Department of Revenue to submit online payments.
State Of Iowa Payroll Tax & Other Resources
As a business owner in Iowa, you’ve probably encountered your share of challenges, especially now with inflation hitting everyone hard. Doing your taxes is just another thing to add to the list.
Though it may seem complicated and time-consuming, knowing your federal, state, and local tax laws is critical to avoiding trouble from the IRS or state tax authorities. Fortunately, Merchant Maverick has your back with the resources you need to stay compliant and help your business reach its full potential.
Still have questions about payroll taxes? Check out our guide on payroll taxes for small businesses. Or, if you’re an Iowa business owner that needs a financial boost, don’t forget to check out our list of small business loans and financing options for Iowans. Good luck!