Comprehensive Guide to Payroll Taxes in Iowa

Navigating payroll taxes in Iowa involves understanding both federal and state tax obligations to ensure compliance. This guide provides a detailed and structured overview of the regulations, requirements and payroll taxes applicable in Iowa, such as paying unemployment insurance, withholding personal income tax, and workers’ compensation. 

Overview of Payroll Taxes in Iowa

Employers in Iowa are responsible for managing several types of payroll taxes, including federal income tax, FICA taxes (Medicare and Social Security), and state payroll taxes. Iowa has a franchise tax for certain financial institutions and an excise tax for businesses selling tobacco, fuel, or rental cars.

Iowa operates with a graduated income tax rate, transitioning to a flat rate of 3.9% in 2026. Nonprofits are generally subject to payroll taxes but can request reimbursable status for the Iowa UI Trust Fund.

The administration of payroll taxes in Iowa is handled by two main bodies: the Iowa Department of Revenue (IDR) for personal income taxes, and Iowa Workforce Development (IWD) for unemployment insurance (UI) taxes. Employers must report new hires within 15 days and register with IWD within 30 days of hiring.

Employers may submit payroll taxes online through GovConnect Iowa for most taxes and myIowa UI for unemployment insurance taxes. Alternatively, estimated tax payments can be sent to the Iowa Department of Revenue by mail with Form IA 1040ES.

Paying unemployment insurance

Iowa employers are responsible for paying unemployment insurance (UI) on behalf of their employees. UI is also known as the state unemployment insurance (SUI) tax. UI is a national program that provides temporary financial aid for workers who are unemployed through no fault of their own, which is managed by IWD in Iowa.

Employers are charged UI at a rate between 0% to 9% on a taxable wage base of $38,200 per employee. New employers pay 1% UI, apart from construction employers who pay 7%. UI tax payments are due quarterly, by the 30th day of the first month of the new quarter.

Employers can manage payments through an online portal. For more information on paying unemployment insurance, you can review the Iowa Workforce Development Division.

Withholding personal income tax from your Iowa employee

Employers in Iowa are also responsible for withholding personal income tax (PIT), a state income tax on income of Iowa residents. Also known as individual income tax, the amount is deducted from the employee’s wages and withheld by the employer. This tax is managed by the Iowa Department of Revenue, who may audit tax returns.

Iowa employees pay PIT at a rate of 4.4% to 5.7% on their entire wage. After accurately calculating how much to withhold, the employer must pay the state. The mandated filing frequency depends on the amount of income tax the employee pays:

• Quarterly for less than $6,000 tax per year
• Monthly for $6,000 - $120,000 tax per year
• Semi-monthly for more than $120,000 tax per year

Employers can remit withheld PIT through Iowa’s online portal. For more information on withholding personal income tax in Iowa, you can browse the Iowa Department of Revenue for relevant information.

Paying your Iowa workers' compensation

Workers’ compensation is another important payment to consider as an employer in Iowa, even if you only have one Iowa employee. The insurance plan is designed to help employees who are injured or fall ill while performing their job. 

Workers’ compensation acts as wage replacement and medical benefit for employees who cannot work due to an unfortunate event during a job-related activity.  It protects the employee from financial strain during recovery and reduces the legal risk to the employer. 

In Iowa, workers’ compensation is typically purchased from a qualified commercial carrier. More information on qualified commercial carriers in Iowa can be found online.

Please be sure that you verify that your workers’ compensation insurance is compliant with the state’s regulations for workers’ compensation.

Simplify US payroll tax compliance with Deel

If you’re an employer in Iowa, this guide provides valuable information on state-specific payroll taxes, compliance, and requirements. However, there’s a lot more information on regulations to consider. To streamline the process and ensure full compliance, Deel offers a convenient solution. 

As a centralized payroll and HR platform, Deel is a comprehensive platform for managing payments, taxes, worker classification, and more. Interested to see our software in action? Request a demo from Deel and see how we help streamline US payroll processes and ensure compliance with state regulations.