How to Calculate Iowa State Taxes

As of 2023, the state of IA no longer subtracts Federal withholdings from the calculation, How does the system calculate Iowa IA state taxes? 

• Payroll

• Deduction and Benefit Master

• Employee Deductions

• Tax Tables 

• Employee Job/Salary

• Payroll Start and Status

• Earnings and Deductions 

For 2024 W-4 changes use: How to Define Employee Deductions and Iowa State Tax Tables

When using Annual tax tables:

• The system will take the employee's Deduction Gross (taxable wages) from the state tax deduction detail in payroll and multiple it by the number of pays to annualize it.

• Then subtract any standard deduction amounts based on exemptions in Employee Deductions. 

• Determine where that amounts lands on the Tax Table. subtract the amount from column A of that line, multiply by the %, Add the amount from column C. 

• Adjust the tax by subtracting any Exemption credits. 

• Divide by the number of pays. 

Example:

1. Determine if the IA state tax table is Annual and how the system annualizes the number of pays.

   1. Go to Deduction and Benefit Master (Payroll>Payroll Setup>Deduction and Benefit Master). Search for the State tax table. Note if the Annual tax table checkbox is checked. 

   2. If the checkbox is not checked, go to Payroll Control Settings (Payroll>Payroll Setup>Payroll Control Settings)

   3. Find the setting for General - Use Annual Tax Tables. Verify if it is set to Y. 

   4. While in Payroll Control Settings, find the setting for General - Use Frequency when Annualizing.

      1. If this is set to Y, the system will look to the Pay Frequency in Employee Master (Biweekly 26, Weekly 52, etc.) 

      2. If this is set to N, the system will look to the Employee Job/Salary base pay record Num Pays Field. 

2. In Earnings and Deductions in the payroll (Payroll>Payroll Processing>Payroll Start and Status>Earnings and Deductions) Search for an Example employee. 

3. Click the Withholding tab. Double click on the State Tax Deduction (4000) to view the detail. 

4. Note the Deduction Gross Amount, Marital Status and Exemptions. (Exemptions and Marital Status pull from the Employee Deduction record)

   1. Also note, there is a Deduction Reconciliation tab that shows the breakdown of the calculation. 

5. In this example, the employee is showing a Deduction Gross amount of 1,346.15, has 3 exemptions and is filing Married. 

6. The employee is biweekly with 26 pays so take the Deduction Gross x 26 pays to annualize the amount (1,346.15 x 26 = 34,999.90)

7. Go to the Tax Tables program (Payroll>Payroll Setup>Income Tax Setup>Tax Tables) and search for the year (2023), State code (IA-Iowa) and Marital Status (M-Married).

8. Click the Calc option in the toolbar. Note the Number of Exemptions claimed fields. In this example they will look to the 2 or more field showing 27,700.00.

9. Note the Exemption credit amounts section. It shows 40.00 for First, Second, Third and each subsequent. Since the example has 3, it would be 40.00 x 3.

10. Take the annualized Deduction Gross and subtract the Standard deduction amount (34,999.90 - 27,700.00 = 7,299.90)

11. Find where that amounts lands on the tax table and use the typical tax calc.

    1. 7,299.90 - 4,800.00 = 2,499.90 x 4.82% = 120.50 + 211.20 = 331.70

12. Subtract out Exemption credit amounts. This employee has 3 so take the current estimated withholding and subtract 40.00, three times. 

    1. 331.70 - 40.00 - 40.00 - 40.00 = 211.70

13. Divide by the number of pays (211.70 / 26 = 8.14) 
    

    1. This example employee's state withholding would be $8.14

If not using Annual tax tables, the steps for annualizing and dividing by number of pays would not be utilized.