Iowa State Tax Update
The Iowa withholding formula and the IA W-4 have been revised for the tax year 2025 to accommodate changes to individual income tax required under Iowa Senate File 2442. This law establishes a 3.80 percent flat tax rate on Iowa individual income beginning January 1, 2025. In addition, beginning in 2025, the deduction amount in Step 1 is determined based on the taxpayer’s marital status as reported on the IA W-4, rather than the allowance amount.
To determine how much to withhold for Iowa individual income tax for wages paid beginning January 1, 2025, use the four-step formula provided below:
Step 1. Determine T1. T1 = G – D (Only this step has changed)
- G: Gross taxable wages for the pay period
- D: Deduction for the pay period
To accommodate the change, a new field labeled “Deduction Amount” was added to the Packages | Payroll | Tax Table | State Taxes screen in the Tax Type Information section. Note: The changes are only applied when the Effective Date is greater than or equal to 01/01/2025.

Step 2. Determine T2. T2 = T1 x 3.80% (or 0.038)
- Multiply T1 by the withholding tax rate of 3.80% or 0.038. The rate is denoted as R in the example calculations.
Step 3. Determine T3. T3 = T2 – (W / P)
- W: Total allowance amount on the IA W-4
- P: Number of pay periods per year
Step 4. Determine T4, or Withholding Amount per Pay Period. T4 = T3 + A
- A: Additional withholding requested per pay period on the IA W-4
Also new in 2025 is the addition of Filing Type. The following tax types are available for selection from the Type drop-down:
- Other, or Married Filing Jointly with Spouse Having Earned Income – $12,000 annually (all covered under Single)
- Head of Household – $18,050.00 annually
- Married Filing Jointly with Spouse Having No Earned Income, or Qualified Surviving Spouse – $24,050.00 annually
- Single (or married but legally separated) – $12,000 annually
- Married – $24,050.00 annually
