Iowa Withholding Tax Information Booklet

Who Must Act as an Iowa Withholding Agent?

Every employer who maintains an office or transacts business in Iowa and who is required to withhold federal income tax on any compensation paid to employees for services performed in Iowa is required to withhold Iowa individual income tax from that compensation. The amount withheld is calculated using the Iowa withholding tables, formulas or percentages. Special rules for withholding on pensions, gambling winnings, and supplemental wage payments are explained in this booklet. All withholding payments to the Department must be the actual amount withheld. No estimations or approximations are permitted.

Registering as an Iowa Withholding Agent

First register with the Internal Revenue Service to obtain a Federal Identification Number (FEIN) or call the IRS at 1-800-829-4933. There is no fee for registering.

Then register online with Iowa or obtain the Iowa Business Tax Registration form (pdf). Please allow four to six weeks to process your application if it is sent on paper. Registrations completed online are normally processed in less time. There is no fee for registering.

Employee Exemption Certificate (IA W-4)

Within 15 days, each new hire and rehire is required to complete and sign an Iowa W-4 (44-019). It must show the number of allowances the employee is claiming for family members, for itemized deductions, for adjustments to income or for the child/dependent care credit. If for any reason the employee does not complete an IA W-4, the employer must withhold at zero allowances. Reference 701 — 46.3(2) Iowa Administrative Code

Employers must keep copies of W-4 forms in their files for at least four years. Reference 701 — 46.3(2)e Iowa Administrative Code

The Iowa W-4 is available online (pdf). (The federal W-4 (pdf) is available on the IRS Web site at www.irs.gov)

Who Qualifies for Exemption?

An employee who does not expect to owe tax during the year may file the Iowa W-4 claiming exemption from tax. Persons below the annual income levels shown below are eligible to claim exemption from Iowa withholding:

Exemption for persons age 65 or older

About the Top Portion of the IA W-4: Iowa Centralized Employee Registry Form

Any employer doing business in Iowa who hires or rehires an employee must submit the Centralized Employee Registry Reporting form (the top portion of the Iowa W-4) to the Iowa Department of Human Services (IDHS) within 15 days of the hire or rehire date. Any questions on completing the form should be directed to the Employers Partnering in Child Support (EPICS) Unit at 1-877-274-2580.

The Centralized Employee Registry form may be submitted by:

Notice to Independent Contractors

If you are an independent contractor, do not complete a W-4. Instead, you may be required to make estimated payments on your income. See our individual income tax forms Web page for estimated payment information, forms and instructions.

Note, however, you also must complete a Centralized Employee Registry Contractor Reporting Form (470-3100) (pdf) from the Iowa Department of Human Services. The person with whom you are contracted may have a supply of these. Otherwise, call IDHS at 1-877-274-2580 to obtain one or use the top of the IA W-4.

Employee or Independent Contractor?

Iowa income tax withholding is not required from wages paid to an independent contractor.

IRS Publication 15, Circular E, contains information on determining whether an individual is an employee or an independent contractor. If you want the Internal Revenue Service to determine whether a worker is an employee or an independent contractor, file IRS Form SS-8 (pdf), Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding. You may also call the IRS at 1-800-829-3676 to obtain this form.

What Income is Subject to Withholding?

Wages and Other Employee Compensation

Iowa income tax withholding is applied to the same wages and compensation to which federal withholding applies. Certain payments made by the employer into employee retirement plans or for employee heath insurance are not considered wages and are not included in the calculations of withholding tax. See IRS Publication 15, Circular E, for details.

Supplemental Wages

"Supplemental wages" includes a bonus, overtime pay, commission or other special payment that is made in addition to the regular wage payment. If federal income tax is withheld on a flat rate basis, Iowa income tax is required to be withheld at the rate of 6 percent. However, if the supplemental wage payment is included with the regular wage payment, the two are combined and the withholding tables or formulas are used. Reference 701 — 46.2(3) Iowa Administrative Code

Winnings from Gambling

Iowa tax is required to be withheld at the rate of 5 percent from lottery winnings and winnings from games of skill, games of chance and raffles in excess of $600, pari-mutuel winnings of more than $1,000, and winnings in excess of $1,200 from slot machines on riverboats or at racetracks. Reference 701 — 46.1(1)d Iowa Administrative Code

Agricultural Wages

Wages paid to agricultural labor are subject to withholding for state income tax purposes to the same extent that the wages are subject to withholding for federal income tax purposes.

Nonwage Withholding Requirements

"Nonwage income" includes pensions, annuities, supplemental unemployment benefits, sick pay benefits and other nonwage income payments to Iowa residents. Iowa income tax is generally required to be withheld in cases where federal income tax is withheld. In situations where no federal income tax is withheld, the receiver of the payment may choose to have Iowa withholding taken out.

Withholding on nonwage income may be made at a rate of 5 percent. Withholding agents should be aware that in certain cases the 5 percent rate may be excessive.

Iowa withholding is not required when payment amounts or taxable amounts of nonwage incomes fall below certain levels, when payments are not subject to Iowa income tax, or when no federal income tax withholding is required on those payments.

Pension and Retirement Income Exclusion (IAW-4P)

A partial exemption is provided for pensions, annuities, self-employed retirement plans, deferred compensation, IRA distributions, and other retirement benefits to qualified individuals. Note: Social Security benefits are not included.

To qualify you must be 55 years of age or older, disabled or a surviving spouse of an individual who would have qualified. The exemption is up to $12,000 for a joint filing status and up to $6,000 for all other filing statuses. Eligible recipients should complete the IA W-4P (pdf).

State income tax is not required to be withheld if the amount of the distribution is $500 per month or less or if the taxable amount is $500 or less and the person receiving the distribution is eligible for the partial exemption of retirement benefits. In instances where the distribution amount or the taxable amount is more than $500 per month but less than $6,000 for the year, no state income tax is required to be withheld, if the person receiving the distribution is eligible for a partial exemption of retirement benefits. Reference 701 — 46.1(2) and 46.3(4) Iowa Administrative Code

Nonresident Wage and Salaries

Employers doing business in Iowa are required to withhold Iowa individual income tax from the wages and salaries of nonresident employees working in Iowa at the same rate as for residents.

Exception: See Iowa-Illinois reciprocal agreement later in this publication.

Other Nonresident Income

The payer or withholding agent may withhold on a one-time basis. The payer should complete a paper Iowa Business Tax Registration form (78-005) stating this to be a one-time report. The withholding payment may be sent in with the completed application to the address on the application form.

The following additional types of income to nonresidents are subject to Iowa withholding:

Nonresidents Working in Interstate Commerce – Railroads / Trucking

Under provisions of federal law, Iowa tax should not be withheld from nonresidents working in Iowa as employees of railroads and trucking firms in interstate commerce if they are working in at least one other state. Withholding may be required for the employee’s state of residence or the nonresident employee may be required to make estimated payments to their state of residence.

Iowa-Illinois Reciprocal Agreement

Iowa and Illinois have a reciprocal agreement for individual income tax purposes. At this time, Iowa's only income tax reciprocal agreement is with Illinois.

Any wages or salary made by an Iowa resident working in Illinois is taxable only to Iowa and not to Illinois. Any wages or salary made by an Illinois resident working in Iowa is taxable only to Illinois and not to Iowa.

An Iowa resident working for wages or salary in Illinois should complete and file Illinois form IL-W-5-NR “Employee's Statement of Nonresidence in Illinois” with the employer so that the employer will be aware it is appropriate to withhold Iowa income tax. The Iowa resident should also complete an Iowa W-4.

An Illinois resident working for wages or salary in Iowa should complete and file the IA 44-016 (pdf) “Employee's Statement of Nonresidence in Iowa” with the employer so that the employer will be aware it is appropriate to withhold Illinois income tax.

Iowa will tax any Iowa-source income received by an Illinois resident that is not from wages or salaries. Illinois will tax any Illinois-source income received by an Iowa resident that is not from wages or salaries. Examples of income that are not wages and salaries and, therefore, not covered under the Iowa-Illinois Reciprocal Agreement are Iowa gambling winnings and unemployment compensation for employment in Iowa.

Unemployment Benefit Payments

Recipients of benefits may choose to have state income tax withheld from the benefit payments at a rate of 5 percent. Questions concerning state unemployment are answered by Iowa Workforce Development at 1-800-562-4692.

Taxable Compensation Not Subject to Iowa Withholding

Exemptions from Iowa withholding follow the guidelines of the Internal Revenue Service, with the following exceptions:

Domestic Workers and Clergy

Domestic workers and clergy are generally excluded from Iowa tax withholding requirements. However, if they anticipate an Iowa tax liability of $200 or more and are not subject to withholding, they may be required to submit quarterly estimated payments.

Interest and Dividends

Interest and dividends are not subject to Iowa withholding.

Film or Television Production - Nonresidents

Wages of nonresidents engaged in film production or television production are not subject to Iowa withholding tax if the withholding agent provides certain information to the Department. The following information must be included:

Applications for exemption from withholding for nonresident employees engaged in film production or television production should be directed to the Iowa Department of Revenue, Compliance Division, Examination Section, Hoover State Office Building, P.O. Box 10456, Des Moines, Iowa 50306.

Agricultural Payments to Nonresidents

Agricultural payments to nonresidents are exempt from Iowa withholding if the withholding agent provides certain information to the Department about the sales of agricultural commodities or products. The following information must be included:

Note: Although these types of payments are not subject to Iowa withholding, they are subject to Iowa income tax in most instances.

Reporting and Paying the Tax

Filing Frequencies

Filing Withholding

Based on their filing frequency, every employer is required to file for each applicable period during the calendar year, even if compensation was not paid during a period. If no wages or compensation was paid during a period, the employer will enter zeroes on the return/deposit for that period.

Quarterly filers are required to file a quarterly return for each calendar quarter for which they are registered.

Monthly filers are required to file two monthly deposits and one quarterly return for each calendar quarter.

Semi-monthly filers are required to file six semi-monthly deposits and one quarterly return for each calendar quarter.

Withholding due dates

Withholding returns are submitted electronically through the eFile & Pay system. Once you are registered as a withholding agent, the Department will send you a Business eFile Number. This number is necessary to access the paperless system. To file online, go to our Web site and click on “eFile & Pay.” To use the touch-tone telephone system, call 1-800-514-8296. Telephone scripts are available on the Department’s Web site. Paper deposits and return forms are not provided; however, paper payment vouchers mailed to permit holders who qualify to pay with check or money order should be used when paying by paper check. For assistance using the eFile & Pay system, call Taxpayer Services at 1-800-367-3388 (Iowa, Omaha, Rock Island, Moline) or 515/281-3114.

Information required to complete the quarterly return includes the Iowa withholding permit number, tax period being filed, total tax withheld for the quarter, prior payments made during the quarter, the amount of credits/adjustments and tax credit certificate information.

Beginning 9/1/12, if you were awarded a tax credit certificate for the period being filed, a withholding credit schedule will be provided through eFile & Pay. Each credit claimed against withholding tax is recorded separately on this schedule. Information entered on the credit schedule will be automatically populated on the withholding quarterly return.

Credits that may be claimed against withholding tax are as follows:

Additional information regarding these programs may be obtained on the Iowa Department of Economic Development Web site and also the Iowa Department of Revenue Web site at http://iowa.gov/tax/business/efp_withholding_tax_credits.html.

Remitting the Tax

Several payment options are offered. including:

If you qualify and prefer to pay with check or money order, please use the payment vouchers you received in the mail. The payment vouchers, along with the confirmation number received when filing, are important to match your payment to your electronically filed return. You will receive a year's supply of payment vouchers in each mailing; please keep them in a safe place. Vouchers are not available on the Department's Web site or TaxFax system. The voucher is not a return; you must file a return even if you make a payment with the voucher. Do not mail the payment voucher if a zero balance is due or if your payment was made electronically. eFile and ePay = Mail Nothing.

Failure to Withhold

A withholding agent who fails to withhold and pay to the Department any money required to be withheld and paid is personally, individually and corporately liable to the State of Iowa. If this occurs, the amount of withholding may be assessed against the withholding agent in the same manner as is used to assess personal or corporate income tax.

Bonding

If an employer or withholding agent fails to remit the required withholding tax by the due date, the Department may require a bond to ensure timely payment in the future.

Penalty and Interest

Penalty for Failure to Timely File

A penalty of 10 percent is added to the tax due for failure to timely file a return if it is not submitted by the due date and at least 90 percent of the correct tax is not paid by the due date. The penalty can be waived only under limited circumstances.

Penalty for Failure to Timely Pay

A penalty of 5 percent is added to the tax due if the return is timely filed but at least 90 percent of the correct tax is not paid by the due date. The penalty can be waived only under limited circumstances.

If both penalties apply, only the failure to file penalty of 10 percent is imposed.

Interest

Interest is added to unpaid tax at a rate prescribed by law from the due date until payment is received. eFile & Pay will automatically calculate any interest due. Interest cannot be waived.

End of the Year Reporting

Verified Summary Report

All withholding agents are required to submit a completed Verified Summary of Payments Report (VSP) by the last day of February. This covers the Iowa income tax withholding payments made in the prior calendar year. The VSP is submitted online through eFile & Pay or by touch-tone telephone. Paper VSPs are not provided.

Wage and Tax Statements (W-2)

Employers are not required to send copies of W-2s or 1099s to the state of Iowa with the VSP. Employers are still required to keep copies of the W-2s and 1099s for at least four years from the end of the year for which the forms apply. Neither are employers required to send copies of W-2c’s to the state of Iowa. If needed, the W-2s, 1099s, and W-2c’s will be sent to the Department by the employee when filing their individual income tax return.

W-2s must be given to employees on or before the last day of January following the tax year or within 30 days of the time the last wage payment is received if requested by the employee. This statement must contain the name, address and federal employer identification number of the employer; and the name, address and Social Security Number of the employee; the gross amount of compensation paid to the employee during the year and the amount of federal and state tax withheld. Reference 701 — 46.3(3)d Iowa Administrative Code

Employees: If you need a copy of your W-2, first ask your employer. Since employers are not required to send copies of W-2s to the Iowa Department of Revenue, we are not able to furnish them to you. If you are unable to obtain a copy from your employer, here are some other possible options:

Frequent Questions and Problems

Does the State of Iowa assign its own employer identification number?

Yes; however, the Federal Employer Identification Number is normally used as part of the Iowa withholding number with a 3-digit suffix added for Iowa registration.

I need to register to withhold Iowa tax from employees’ wages, but have not yet received my Federal Employer Identification Number. What will my number be?

Complete the Iowa Business Tax Registration form online. Choose “applied for” in the “Federal I.D. Number” blank. The Department will issue a temporary identification number with a "00" prefix.

Once you receive your Federal Employer Identification Number (FEIN), use the online Change, Cancel or Reinstate Business Tax Registration system to update your Iowa permit number to match your FEIN.

I do not yet have an Iowa withholding permit number. Tax is due shortly. What should I do?

If you have not already done so, complete the application as soon as possible. Apply online or use the Business Tax Registration form (78-005).

If tax is due or will be due shortly, send a check for the amount withheld for the period to Withholding Tax Processing, Iowa Department of Revenue, PO Box 10411, Des Moines IA 50306-0411. Include the following: an explanation, your name and address, the period covered by the remittance, and your Federal Employer Identification Number.

The Department will process your application and credit the amount paid to your account.

The due date for remitting tax has arrived. I have received my Iowa withholding permit number and Business eFile Number (BEN), but have not received the withholding payment vouchers. What should I do?

Payment options include:

Note: If you pay by mail, send a note with your check made payable to Treasurer, State of Iowa. Please include on the check and in the note the business name and address, your Iowa withholding permit number, the period end date, and the eFile & Pay Confirmation Number received when you electronically filed your return.

Mail payment and note to: Withholding Tax Processing, Iowa Department of Revenue, PO Box 10411, Des Moines, IA 50306-0411.

If you feel there may be a problem with your account, contact the Department. It normally takes 4-6 weeks from the time an application is filed until the vouchers for remitting tax payments are received.

Is the employer required to match the amount of Iowa income tax withheld from the employees’ wages?

No. There is no matching of withholding of Iowa income tax from the employees’ wages.

How is withholding calculated?

There are two methods of figuring the Iowa income tax withholding. The employer can use either the manual tables or the computer formula found in the Iowa Withholding Tax Guide. Either method is acceptable.

Where does an employer obtain blank W-2s, Iowa W-4s and Iowa W-4Ps?

W-2s may be obtained from the Internal Revenue Service on the IRS Web site or by calling 1-800-829-3676 or by purchasing them through an office supply/forms business.

Iowa W-4s and Iowa W-4Ps are available free of charge on the Iowa Department of Revenue Web site in the withholding forms section.

When can an employee fill out an Iowa W-4 to change their number of allowances?

An employee can adjust their withholding at any time by providing the employer with a new Iowa W-4.

updated 03/07/13