Iowa Administrative Code › Agency 701 - Revenue Department › Title I - Administration › Chapter 40 - Determination of Net Income › Rule 701-40.21 - Additional Deduction for Wages Paid or Accrued for Work Done in Iowa by Certain Individuals

Current through Register Vol. 47, No. 3, July 24, 2024
For tax years beginning on or after January 1, 1984, but
				  before January 1, 1989, a taxpayer who operates a business which is considered
				  to be a small business as defined in subrule 40.21(2) is allowed an additional
				  deduction for 50 percent of the first 12 months of wages paid or accrued during
				  the tax years for work done in Iowa by employees first hired on or after
				  January 1, 1984, or after July 1, 1984, where the taxpayer first qualifies as a
				  small business under the expanded definition of a small business effective July
				  1, 1984, and meets one of the following criteria.
A handicapped individual domiciled in this state at the time
				  of hiring.
An individual domiciled in this state at the time of hiring
				  who meets any of the following conditions:
1. Has been convicted of a felony in this or
				any other state or the District of Columbia.
2. Is on parole pursuant to Iowa Code chapter
				906.
3. Is on probation pursuant to
				Iowa Code chapter 907 for an offense other than a simple misdemeanor.
4. Is in a work release program pursuant to
				Iowa Code chapter 247A.
An individual, whether or not domiciled in this state at the
				  time of the hiring, who is on parole or probation and to whom the interstate
				  probation and parole compact under Iowa Code section 913.40 applies.
For tax years beginning on or after January 1, 1989, the
				  additional deduction for wages paid or accrued for work done in Iowa by certain
				  individuals is 65 percent of the wages paid for the first 12 months of
				  employment of the individuals, not to exceed $20,000 per individual.
				  Individuals must meet the same criteria to qualify their employers for this
				  deduction for tax years beginning on or after January 1, 1989, as for tax years
				  beginning before January 1, 1989.
For tax years ending after July 1, 1990, a taxpayer who
				  operates a business which does not qualify as a small business specified in
				  subrule 40.21(2) may claim an additional deduction for wages paid or accrued
				  for work done in Iowa by certain convicted felons provided the felons are
				  described in the four numbered paragraphs above and the following unnumbered
				  paragraph and provided the felons are first hired on or after July 1, 1990. The
				  additional deduction is 65 percent not to exceed $20,000 for the first 12
				  months of wages paid for work done in Iowa.
The qualifications mentioned in subrules 40.21(1), 40.21(4),
				  40.21(5) and 40.21(6) and in subrule 40.21(3), paragraphs
"f"
and
"g,
"apply to the additional deduction
				  for work done in Iowa by a convicted felon in situations where the taxpayer is
				  not a small business as well as in situations where the taxpayer is a small
				  business.
The additional deduction applies to any individual hired on
				  or after July 1, 2001, whether or not domiciled in Iowa at the time of hiring,
				  who is on parole or probation and to whom either the interstate probation and
				  parole compact under Iowa Code section 907A.1 or the compact for adult
				  offenders under Iowa Code chapter 907B applies. The amount of additional
				  deduction for hiring this individual is equal to 65 percent of the wages paid,
				  but the additional deduction is not to exceed $20,000 for the first 12 months
				  of wages paid for work done in Iowa.
(1) The additional deduction shall not be
				allowed for wages paid to an individual who was hired to replace an individual
				whose employment was terminated within the 12-month period preceding the date
				of first employment. However, if the individual being replaced left employment
				voluntarily without good cause attributable to the employer or if the
				individual was discharged for misconduct in connection with the individual's
				employment as determined by the department of workforce development, the
				additional deduction shall be allowed.
The determination of whether an individual left employment
				  voluntarily without good cause attributable to the employer or if the
				  individual was discharged for misconduct is a factual determination which must
				  be made on a case-by-case basis.
(2) The term "small business" means a
				business entity organized for profit including but not limited to an individual
				proprietorship, partnership, joint venture, association or cooperative. It
				includes the operation of a farm, but not the practice of a profession. The
				following conditions apply to a business entity which is a small business for
				purposes of the additional deduction for wages:
a. The small business shall not have had more
				than 20 full-time equivalent employee positions during each of the 26
				consecutive weeks within the 52-week period immediately preceding the date on
				which an individual for whom an additional deduction for wages is taken was
				hired. Full-time equivalent position means any of the following:
1. An employment position requiring an
				average work week of 40 or more hours;
2. An employment position for which
				compensation is paid on a salaried full-time basis without regard to hours
				worked; or
3. An aggregation of any
				number of part-time positions which equal one full-time position. For purposes
				of this subrule each part-time position shall be categorized with regard to the
				average number of hours worked each week as a one-quarter, half, three-quarter,
				or full-time position, as set forth in the following table:
Average Number of Weekly
				  Hours
Category
More than 0 but less than 15 ¼
15 or more but less than 25 ½
25 or more but less than 35 ¾
35 or more 1 (full-time)
b. The small business shall not have more
				than $1 million in annual gross revenues, or after July 1, 1984, $3 million in
				annual gross revenues or as the average of the three preceding tax years.
				"Annual gross revenues" means total sales, before deducting returns and
				allowances but after deducting corrections and trade discounts, sales taxes and
				excise taxes based on sales, as determined in accordance with generally
				accepted accounting principles.
c.
				The small business shall not be an affiliate or subsidiary of a business which
				is dominant in its field of operation. "Dominant in its field of operation"
				means having more than 20 full-time equivalent employees and more than $1
				million of annual gross revenues, or after July 1, 1984, $3 million of annual
				gross revenues or as the average of the three preceding tax years. "Affiliate
				or subsidiary of a business dominant in its field of operations" means a
				business which is at least 20 percent owned by a business dominant in its field
				of operation, or by partners, officers, directors, majority stockholders, or
				their equivalent, of a business dominant in that field of operation.
d. "Operation of a farm" means the
				cultivation of land for the production of agricultural crops, the raising of
				poultry, the production of eggs, the production of milk, the production of
				fruit or other horticultural crops, grazing or the production of livestock.
				Operation of a farm shall not include the production of timber, forest
				products, nursery products, or sod and operation of a farm shall not include a
				contract where a processor or distributor of farm products or supplies provides
				spraying, harvesting or other farm services.
e. "The practice of a profession" means a
				vocation requiring specialized knowledge and preparation including but not
				limited to the following: medicine and surgery, podiatry, osteopathy,
				osteopathic medicine and surgery, psychology, psychiatry, chiropractic,
				nursing, dentistry, dental hygiene, optometry, speech pathology, audiology,
				pharmacy, physical therapy, occupational therapy, mortuary science, law,
				architecture, engineering and surveying, and accounting.
(3) Definitions.
a. The term
"handicapped person
				"
means any person who has a physical or mental impairment which
				substantially limits one or more major life activities, has a record of such
				impairment, or is regarded as having such an impairment.
The term handicapped does not include any person who is an
				  alcoholic or drug abuser whose current use of alcohol or drugs prevents the
				  person from performing the duties of employment or whose employment, by reason
				  of current use of alcohol or drugs, would constitute a direct threat to the
				  property or the safety of others.
b. The term
"physical or mental
				impairment"
means any physiological disorder or condition, cosmetic
				disfigurement, or anatomical loss affecting one or more of the following body
				systems: neurological; musculoskeletal; special sense organs; respiratory,
				including speech organs; cardiovascular; reproductive; digestive;
				genitourinary; hemic and lymphatic; skin and endocrine; or any mental or
				psychological disorder, such as intellectual disability, organic brain
				syndrome, emotional or mental illness, and specific learning
				disabilities.
c. The
				term
"major life activities"
means functions such as caring for
				one's self, performing manual tasks, walking, seeing, hearing, speaking,
				breathing, learning, and working.
d. The term
"has a record of such
				impairment"
means has a history of, or has been misclassified as
				having, a mental or physical impairment that substantially limits one or more
				major life activities.
e. The
				term
"is regarded as having such an impairment"
means:
1. Has a physical or mental impairment that
				does not substantially limit major life activities but that is perceived as
				constituting such a limitation;
2.
				Has a physical or mental impairment that substantially limits major life
				activities only as a result of the attitudes of others toward such impairment;
				or
3. Has none of the impairments
				defined as physical or mental impairments, but is perceived as having such an
				impairment.
f. The
				term
"successfully completing a probationary period"
includes
				those instances where the employee quits without good cause attributable to the
				employer during the probationary period or was discharged for misconduct during
				the probationary period.
g. The
				term
"probationary period"
means the period of probation for
				newly hired employees, if the employer has a written probationary policy. If
				the employer has no written probationary policy for newly hired employees, the
				probationary period shall be considered to be six months from the date of
				hire.
(4) If a newly
				hired employee has been certified as either a vocational rehabilitation
				referral or an economically disadvantaged ex-convict for purposes of
				qualification for the work opportunity tax credit under Section 51 of the
				Internal Revenue Code, that employee shall be considered to have met the
				qualifications for the additional wage deduction.
A vocational rehabilitation referral is any individual
				  certified by a state employment agency as having a physical or mental
				  disability which, for the individual constitutes or results in a substantial
				  handicap to employment. In addition, the individual must have been referred to
				  the employer after completion or while receiving rehabilitation services
				  pursuant to either a state or federal approved vocational rehabilitation
				  program.
For all other newly hired employees, the employer has the
				  burden of proof to show that the employees meet the qualifications for the
				  additional wage deduction.
(5) The taxpayer shall include a schedule
				with the filing of its tax return showing the name, address, social security
				number, date of hiring and wages paid of each employee for which the taxpayer
				claims the additional deduction for wages.
(6) If the employee for which an additional
				deduction for wages was allowed fails to successfully complete a probationary
				period and the taxpayer has already filed an Iowa individual income tax return
				taking the additional deduction for wages, the taxpayer shall file an amended
				return adding back the additional deduction for wages. The amended return shall
				state the name and social security number of the employee who failed to
				successfully complete a probationary period.
This rule is intended to implement 2011 Iowa Code Supplement
				  section
				  4227.
				  as amended by 2012 Iowa Acts, Senate File 2247.