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The New Iowa W-4 Form: Guide for Employers

This year marks the second year in a multi-year plan to simplify and lower Iowa state income tax. This is great news as employees will have a little more cash making its way to their pockets come payday, but the changes have also added work for employers to ensure Iowa state taxes are being properly withheld. Below we’ve outlined the basics of what you need to know and what you should do to help your employees have the right state tax withholding.

Why Did the Iowa W-4 Form Change?

Back in 2022, Iowa’s Governor signed a tax cut that lowers and simplifies Iowans’ income taxes over a phased 4-year plan. This year, the top rate has been lowered to 5.7% which is reducing taxes for those making $30,000 or more. The Iowa Department of Revenue has released an updated 2024 W-4 form to correspond with the updated tax tables. Next year, the top rate will move down to 4.82% (reducing tax for those making $6,000 or more), and then finally in 2026, everyone will be moved to one flat low rate of 3.9%.

What Should Employers Be Doing Now?

Usually, employees do not need to complete a new W-4 form each year, but this year is different. With Iowa updating its income tax withholding tables and the W-4 form, employers should be asking employees to complete the new form to ensure the proper amount is being withheld.

First and foremost, you should ensure your payroll administrator is processing your payrolls using the newly updated Iowa income tax withholding tables effective 1-1-2024, and all employees should default to the setting of $40 allowance with $0 additional withholding until they complete the new form.

The next step, often overlooked by companies without full-time HR or payroll staff, is ensuring your employees are educated about this change. The last thing you want is for your employees to be caught off guard come tax time by not withholding enough or not letting them reap the benefits now from the lower tax rate by withholding too much.

How Can I Help My Employees?

The new Iowa W-4 is noticeably different from the previous version, which can cause some confusion. The biggest difference is you will no longer use a number for allowances, but a dollar amount that aligns with the method on the Federal W-4 form. The other noticeable difference is the choices for marital status. “Single” is no longer an option. The options are now: “married filing jointly”, “head of household”, or “other” (which includes single, married filing separately, or qualifying surviving spouse).

While you should avoid giving tax advice to your employees, you can help them feel more confident completing the form by providing helpful resources. Follow the link below to download a complimentary one-pager you may use to assist employees. Also, the Iowa Department of Revenue’s basic withholding estimator is a great resource to recommend if an employee is questioning whether they are withholding enough.

Lastly, if you are a small business owner or oversee HR/payroll for your company and are struggling to find the time to educate and ensure your employees are completing an updated W-4 form, let us help you. MSquared Talent Solutions clients confidently rely on us and our payroll technology to automatically apply the correct tax tables and required default settings, communicate the changes and instructions to employees, and process the updated forms electronically (no paper W-4 forms to track). Whether you have 1 or 200 employees, we can save you time and headaches so you can focus on your passion – your business.

Preview of the Iowa W-4 Quick Guide for Employees
Iowa W-4 Form: Employee Quick Guide