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Iowa State Tax Update

PostedJanuary 13, 2025
UpdatedJanuary 13, 2025

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
Table of Contents

 

Delinquents

No Penalty Option for Delinquents

A new “No Penalty” option is now available for delinquent accounts, so users have the ability to send a late notice to an account, but keep the account from getting a penalty. An Expire Date, Alert, and reports are available for accounts flagged No Penalty.

A No Penalty check box was added to the Credit Node of the Service Order, with a corresponding Expire Date drop-down calendar. When checked, the account can receive a delinquent notice, but will not get a late fee during the Penalties process. The Expire Date can be set to limit the amount of time the account is exempt from penalties.

A No Penalty Alert is available for both Inquiry and Payments at Maintenance | Common | Alerts, and will display in the Alerts window for any accounts flagged No Penalty.

The Non-Zero Balance Report found in the report’s menu of the Delinquent process, contains a new No Penalty column to aid in identifying No Penalty accounts.

The Credit Attributes report, and the Grid Report – Account can be used to discover accounts flagged as No Penalty. The Credit Attributes report has a new group box for No Penalty Options, and the Grid Report – Account includes No Penalty, and No Penalty Expire Date selections.