Payroll tax in Iowa: What employers need to know [2024]

Navigating payroll taxes is inevitable for business owners. On top of federal income tax, federal unemployment tax (FUTA), and FICA taxes—like Medicare and Social Security—you’re also responsible for state payroll taxes. It’s crucial to understand the nuances of federal withholdings—and, if you do business or hire in Iowa, the Hawkeye State’s tax regulations, to steer clear of penalties for late or inaccurate filings.

Like many states, Iowa currently has a graduated income tax rate, where tax rates go up as income increases. However, in 2026, Iowa will shift to a flat individual income tax rate of 3.9%. This will make tax calculations much simpler. But in the meantime, you’ll need to comply with the current payroll tax rates and due dates.  

This comprehensive guide will give you the rundown on employee withholdings and deductions in the state of Iowa—including tax rates, who pays what, and filing deadlines.

The 2 Iowa payroll taxes

Iowa has two payroll taxes: personal income tax, also referred to as withholding tax, and unemployment insurance (UI) tax. The Iowa Department of Revenue (IDR) oversees personal income taxes at the state level, while the Iowa Workforce Development (IWD) manages the state's UI taxes.

Employers in Iowa typically need to start fulfilling payroll tax obligations when they hire their first employee. All employers must report new hires to the Iowa Centralized Employee Registry (CER) within 15 days of their start date. 

Next, let's delve into the specifics around tax rates and who’s responsible for paying each tax.

Unemployment insurance tax

The Iowa Unemployment Insurance Program provides financial assistance to qualified workers to help them through short periods of unemployment. Employers pay a specific tax that goes into a fund solely dedicated to covering unemployment benefits for workers.  

Within 30 days of hiring new employees in Iowa or acquiring an existing business, you must register with Iowa Workforce Development (IWD) online. The IWD provides tax tables and a formula for determining your tax rate.

Personal income tax 

Personal income tax (PIT) funds Iowa state resources like schools, healthcare infrastructure, roads, and more. Employees pay federal and state income tax, but employers are required to withhold this tax from employees’ pay. Under federal income tax law, an employee’s filing status is based on their family situation along with marital status. It determines their correct tax rate, filing requirements, standard deduction, and eligibility for certain credits. 

Iowa income tax withholding is similar to federal withholding. However, contributions to employee retirement plans and health insurance payments don't count in the withholding tax calculations.

Iowa has a reciprocal agreement with Illinois, meaning Illinois residents working in Iowa are only taxed in Illinois, not Iowa. You’ll need these employees to fill out Form IA 44016, but you don’t have to file a withholding tax for them.

There are two ways to calculate your Iowa personal income tax:

1. Use the Iowa withholding tables, which are separated according to employee pay periods (daily, weekly, biweekly, semimonthly, monthly, and annually).
2. Use the Iowa withholding formula, a five-step process requiring more computations. 

Instructions for using both the tables and the formula are available on the Iowa Withholding Tax Information page. 

You can also make things easier by using Rippling’s payroll software. Rippling ensures you stay compliant by automatically calculating your taxes and submitting all tax forms and payments on your behalf. Taking it a step further, Rippling’s PEO even registers and maintains your state tax accounts for you.

Payroll tax due dates in Iowa

Your payroll tax payment schedule for PIT depends on your withholding tax liability, as seen in the table below. 

Even if you didn’t pay any wages or compensation during a period, you’ll still need to file for each applicable period by simply entering zeroes on the return/deposit.

If you don’t file your return by the due date and at least 90% of the correct tax isn’t paid on time, you’ll need to pay an extra 5% on your taxes plus interest. 

Unemployment insurance taxes are due each quarter by the 30th day of the first month of the new quarter.

How to submit payroll taxes in Iowa

All new employers need to register as an Iowa withholding agent—first with the Internal Revenue Service to get a Federal Employer Identification Number (FEIN), and then with Iowa on the GovConnectIowa website. 

You’ll also need all new employees to fill out and sign an Iowa W-4 (44-019), which is available online. Remember to keep copies of all W-4 forms for at least four years, as per the Iowa Administrative Code rule 701—307.3(2)"e."

Then, you have a few options for submitting your payroll taxes. 

Submit online

It’s easy to submit your withholding returns electronically through the Department’s online service GovConnectIowa. 

Through GovConnectIowa, you’ll also be able to:

• Make payments
• Find tax information
• Submit documents directly through GovConnectIowa
• Receive and respond to correspondence from the Department of Revenue
• Update your contact and mailing information

If you have a tax credit certificate for a filing period, you’ll get a withholding credit schedule when you file online. The credits you can claim against withholding tax include The Iowa New Jobs Training Program Credit (NJC), the Supplemental New Jobs Credit (SJC), the Accelerated Career Education Credit (ACE), and the Targeted Jobs Tax Credit (TJC). 

You can pay your unemployment insurance tax through the myIowa UI online portal. IWD is launching a new unemployment insurance benefits system, IowaWORKS, in the summer of 2024. You can prepare for this change by setting up an employer account here.

Submit by mail

Alternatively, you can mail your estimated tax payment along with payment voucher Form IA 1040ES to the address below:

Iowa Department of Revenue
PO Box 10466
Des Moines, IA 50306-0466

Rippling’s full-service payroll software

Simplify your payment processes with Rippling's payroll software—it takes on all the tedious work for you. Whether you’re a small business owner or run a huge corporation, Rippling automates all your compliance tasks. It ensures that your federal, state, and local payroll taxes are filed correctly and on time with the IRS, the Iowa Department of Revenue, and the Department of Labor.

FAQs about Iowa payroll taxes

Are there local tax laws in Iowa?

Yes, depending on where your business is located in Iowa, you may need to file additional local taxes. Some areas, for instance, impose an additional 1% local option sales tax. Iowa also has a franchise tax for specific financial institutions and companies providing certain financial services. Be aware of excise taxes if your business sells tobacco, fuel, or rental cars.

Can your tax returns be audited in Iowa?

Yes, just like in any state, your tax returns in Iowa are subject to potential audits. The Iowa Department of Revenue carries out audits to validate tax returns, so it’s essential to keep accurate records and follow all state tax laws to avoid any complications.

Are nonprofit organizations subject to payroll taxes in Iowa?

Yes, most nonprofits are subject to paying payroll taxes in Iowa. However, nonprofits may request reimbursable status to reimburse the Iowa UI Trust Fund for any UI benefits paid rather than contributing to the Fund. 

Does Iowa tax nonresident income?

Yes, Iowa employers must withhold state income tax from the wages of nonresident employees working in Iowa. The withholding rate for nonresidents is the same as for residents. Illinois residents have an exception, as per the Iowa-Illinois reciprocal agreement.

Disclaimer: Rippling and its affiliates do not provide tax, accounting, or legal advice. This material has been prepared for informational purposes only, and is not intended to provide or be relied on for tax, accounting, or legal advice. You should consult your own tax, accounting, and legal advisors before engaging in any related activities or transactions.