Iowa Withholding laws & HR compliance analysis

Iowa Withholding: What you need to know

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 (IDR) (IA Code Sec. 422.16). Iowa generally follows the federal Internal Revenue Code (IRC) (IA Code Sec. 422.3).
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Withholding applies to:
• 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. Any wages or salary made by an Iowa resident working in Illinois is taxable only to Iowa and not to Illinois, and vice versa. 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 the employer knows to withhold Iowa income tax. The Iowa resident should also complete an Iowa W-4. 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 6 percent, must be withheld from supplemental wages when the employer treats them as wholly separate from regular wages, and federal income tax is withheld at a flat rate.
Additional withholding of ...

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