Employers must deduct and withhold Iowa state income taxes from employees' wages with the amount determined by official withholding tables prepared by the Iowa Department of Revenue (IA Code Sec. 422.16). Iowa generally follows the federal Internal Revenue Code (IRC) (IA Code Sec. 422.3). Iowa did not couple with the bonus depreciation provisions allowed for federal tax purposes for the 2014 tax year.
• Wages of residents, regardless of where earned (Iowa residents working in other states should have Iowa tax withheld only to the extent it exceeds the other state's taxes).
• Wages of nonresidents for income earned in Iowa.
Iowa has a reciprocal agreement with Illinois. Employers should withhold Illinois income taxes from the wages of Illinois residents employed in Iowa who file an Employee's Statement of Nonresidence in Iowa, Form 44-016.
Supplemental wages (e.g., bonuses, commissions, special payments) can be handled in two ways depending on how the payments are made. Employers may add the supplemental wages to regular wages and treat both as one payment if they are paid at the same time. In contrast, state income tax, at the rate of six percent, must be withheld from supplemental wages of employees in those circumstances in which the employer treats supplemental wages as wholly separate from regular wages for purposes of withholding and federal income tax.
Additional withholding of taxes can be done on a voluntary basis.
The withholding requirements do not apply to domestic workers and clergy.