Iowa is fairly middle-of-the-road when it comes to payroll taxes. Its graduated income tax rate is lower than that of its neighbor to the north, Minnesota. But it’s about the same as Illinois and Wisconsin. Like many other states, Iowa is transitioning away from a graduated income tax rate. The Hawkeye State will have a flat rate of 3.90% by 2026.
For a long time, Iowa was one of a handful of states that allowed you to deduct federal taxes paid from your state income taxes. But the state officially repealed that deductibility as of the 2024 tax year.
Here’s what you need to know if you’re running payroll in Iowa.
Iowa Payroll Tax Overview
If you’re new to running payroll in Iowa, it can feel overwhelming to get started—especially the tax part. There’s a lot at stake if you get things wrong. But we’ve got a breakdown of everything you should know as you get going:
- State Income Tax: Iowa is moving toward a flat tax rate. But that won’t take effect until 2026. For now, the state splits earnings into four brackets. The lower an earner is on the bracket, the lower their tax rate. If taxpayers are married, the lower and upper limits double for each bracket. Here’s what the income tax looks like for 2023-2026:
- 2023: 4.40% – 6.00%, depending on the bracket
- 2024: 4.40% – 5.70%, depending on the bracket
- 2025: 4.40% – 4.82%, depending on the bracket
- 2026: 3.90% for all tax brackets
- Minimum Wage: Iowa’s minimum wage is $7.25 an hour, which is where it’s been stuck since 2008. But if you employ restaurant staff or other workers who regularly receive tips, you can pay as little as $4.35 an hour—as long as the tips make up the difference. If the tips don’t make up the difference, you’ll be responsible for doing that. Iowa employers can also pay a lower minimum wage of $6.35 per hour for the first 90 days of employment.
- State Unemployment Tax: State unemployment insurance tax ranges from 0% to 9%. The exact rate depends on which tax table is in use in a specific tax year, along with the company’s benefit ratio rank. The taxable wage base is $38,200 for each employee.
- Workers Compensation: Most Iowa employers with at least one employee must provide worker’s compensation insurance.
- Paid Leave: There is no mandatory paid leave in Iowa. However, if your employment policy includes paid leave or PTO, you are legally bound to follow those policies. This is especially important to pay attention to when it comes to PTO payout laws.
- Meal Breaks: Iowa does not require employers to offer meal breaks to adult workers. But if you employ anyone younger than 16, you must provide a 30-minute break if the minor is employed for five or more hours a day. In addition, all employees must be allowed to use the restroom as needed. And finally, if your employees are part of a union, you must follow the union’s contract, which may include mandatory breaks.
Remember that these laws only apply on a state level. You still have to keep federal payroll tax and employment laws in mind, too. Make sure you’re familiar with things like the Fair Labor Standards Act (FLSA) and the Family and Medical Leave Act (FMLA).
Filing Iowa Payroll Tax and Wage Reports
To withhold your employees’ income taxes and pay them to the state, you’ll need to register as an Iowa Withholding Agent. To do this, you’ll first register with the Internal Revenue Service (IRS) to get a Federal Employer Identification Number (FEIN) if you don’t already have one.
Next, you’ll register your business with the state of Iowa on the GovConnectIowa portal. You can start withholding taxes as soon as you make a registration request. The state recommends downloading a copy of your request and keeping it somewhere safe. Until you get your actual permit, the request serves as proof that you are authorized to withhold taxes from employees.
You can file and pay all your business’s withheld state income taxes and submit annual W-2 wage and tax statements through the GovConnectIowa portal. During the business registration process, the state will tell you whether you must file and pay taxes semi-monthly, monthly, or quarterly. See the calendars for all three withholding schedules.
Unemployment insurance taxes are filed and paid through a separate system—the Iowa Workforce Development Department’s MyIowaUI portal. You’ll need to create a MyIowaUI account and register your business with the department.
It’s important to note that the state only wants businesses to register for a UI tax account when they have officially employed workers in Iowa and have paid them wages, or they are seeking an Iowa Department of Labor contractor registration.
Have the following information at hand and ready to go when it’s time to create your account:
- Federal Employer Identification Number (FEIN)
- Social Security numbers for all owners/partners/corporate officers/members of an LLC
- Date you officially began employing workers and the date of the first wages you ever paid them
- Amount of wages paid to employees or corporate officers during the current and previous year
- Number of weeks employees worked for you in Iowa during the current or previous year
- Address for where your work is performed in Iowa
- Name and address of the business
- Physical address(es) and type of work performed in Iowa
Businesses must submit wage reports and UI tax payments every quarter. Both are due one month after the quarter ends. So for Q1, which includes the months of January 1 through March 31, the wage reports and tax payments are due by April 30.
For more information about UI in Iowa, check out the Workforce Development Department’s New Business Fact Sheet.
Iowa Paycheck Laws
All Iowa employers must pay their employees at least monthly, semi-monthly, or bi-weekly. The paydays must be designated in advance by you, the employer, and must be paid in consistent intervals.
According to the state’s final paycheck laws, final paychecks must be paid by the next regular payday with few exceptions.
So let’s say the next typical payday for a company is on February 28. Employee A quits on February 1. Employee B is fired on February 26. Both would be paid their final check on February 28.
The company could decide to pay Employee A their final paycheck sooner, but they couldn’t pay it any later than February 28.
Iowa also has firm rules about what employers can deduct from an employee’s paycheck. Here’s an example of what you can’t deduct:
- Lost or stolen property, unless that property was specifically signed out to the employee in question.
- Till shortages.
- Tips an employer’s customer gives to an employee instead of the employer.
- Losses that are the customer’s fault, like nonpayment of goods or services and damaged property.
- Costs of personal protective equipment (PPE). You can deduct the cost of uniforms and other work-specific clothing as long as employees are permitted to use them during non-working hours.
Finally, the Hawkeye State requires employers to provide Ioans with a pay stub on each payday. The pay stub must include the hours the employee worked, the wages earned, and the deductions made from the check. If an employee requests an itemized pay stub, the employer must provide one within 10 days. An itemized stub would include everything on a regular paystub plus an explanation of how the wages and deductions were calculated.
New Hire Reporting for Iowa Payroll
As an Iowa employer, you’ll need to report new hires to the state within 15 days of the hire date. This helps the state and federal governments keep track of child support payments and make sure they get paid to the people who need them.
Iowa’s reporting requirement has a shorter deadline than what federal law requires—20 days—so make sure you’re on top of it. Keep in mind that you must also report independent contractors within 15 days if:
- Your contract or agreement stipulates payments of at least twice a year, AND
- The total payment is more than $600 (or $10 in royalties) and thus requires you to file a 1099 for the contractor.
To report new hires with the state of Iowa, you need to register as an employer on the Iowa Department of Human Services Employer Child Support Site. When you register, you’ll need to provide your:
- Federal Employer Identification Number (FEIN)
- Company name, address, and phone number
- Address where Income Withholding Orders (IWO) must be sent if it’s different from your company address
Once you create an account, you’ll be able to report new hires, re-hires, and terminations online. You’ll also be able to receive important child support documentation, like IWOs, and pay child support garnishments to the intended recipient.
New hire reporting is a key part of payroll compliance, so avoid procrastinating on the 15-day deadline. A high-quality payroll software service can send you reminders to help you stay on track.
