Iowa Administrative Code › Agency 701 - Revenue Department › Title I - Administration › Chapter 46 - Withholding › Rule 701-46.1 - Who Must Withhold

Current through Register Vol. 47, No. 3, July 24, 2024
(1)
Requirement of withholding.
a.
General rule.
Every
				employer maintaining an office or transacting business within this state and
				required under provisions of Sections 3401 to 3404 of the Internal Revenue Code
				to withhold and pay federal income tax on compensation paid for services
				performed in this state to an individual is required to deduct and withhold
				from such compensation for each payroll period (as defined in Section 3401(b)
				of the Internal Revenue Code) an amount computed in accordance with subrules
				46.2(1) and 46.2(2). Iowa income tax is not required to be withheld on any
				compensation paid in this state of a character which is not subject to federal
				income tax withholding (whether or not such compensation is subject to
				withholding for federal taxes other than income tax, e.g., FICA taxes), except
				as provided in rule
				701-464.
				(422).
b.
Examples.
Paragraph
"a"
above may be
				illustrated by the following examples:
(1)
				Temporary help. A is a typist in the offices of B corporation, where she has
				worked regularly for two months. A is, however, supplied to B corporation by C,
				a temporary help agency located in Iowa. C renders a weekly bill to B
				corporation for A's services, and C then pays A. B corporation is not A's
				"employer" within Section 3401(d) of the Internal Revenue Code, and B
				corporation is therefore not required by the Internal Revenue Code to withhold
				a tax on A's compensation. Since B corporation is not required to withhold a
				tax for federal purposes on A's compensation, B is not required to do so for
				Iowa purposes. C, the temporary help agency, however, is required to withhold
				from A's compensation for federal purposes and must also do so for Iowa
				purposes.
(2) Domestic help. A is
				employed as a cook by Mr. and Mrs. B. The B's are required to withhold FICA
				(i.e., Social Security) tax from compensation paid to A, but are not required
				to withhold income tax from such compensation under the Internal Revenue Code,
				because under Section 3401(a)(3), A's compensation does not constitute "wages".
				Since the B's are not required to withhold income tax for federal purposes,
				they are not required to do so for Iowa purposes.
(3) Executives. A is a corporate executive.
				On January 1, 1998, A entered into an agreement with B corporation under which
				he was to be employed by B in an executive capacity for a period of five years.
				Under the contract, A is entitled to a stated annual salary and to additional
				compensation of $10,000 for each year. The additional compensation is to be
				credited to a bookkeeping reserve account and deferred, accumulated and paid in
				annual installments of $5,000 on A's retirement beginning January 1, 2003. In
				the event of A's death prior to exhaustion of the account, the balance is to be
				paid to A's personal representative. A is not required to render any service to
				B after December 31, 2002. During 2003, A is paid $5,000 while a resident of
				Iowa. The $5,000 is not excluded from "wages" under Section 3401(a) of the
				Internal Revenue Code; therefore, B is required to withhold federal income tax,
				and, since it is compensation paid in this state, B must withhold Iowa income
				tax on A's deferred compensation.
(4) Agricultural labor. Wages paid for
				agricultural labor are subject to withholding for state income tax purposes to
				the same extent that the wages are subject to withholding for federal income
				tax purposes.
c.
Exemption from withholding.
An employer may be relieved of the
				responsibility to withhold Iowa income tax on an employee who does not
				anticipate an Iowa income tax liability for the current tax year.
An employee who anticipates no Iowa income tax liability for
				  the current tax year shall file with the employer a withholding allowance
				  certificate claiming exemption from withholding. An employee who meets this
				  criterion may claim an exemption from withholding at any time; however, this
				  exemption from withholding must be renewed by February 15 of each tax year that
				  the criterion is met. If the employee wishes to discontinue or is required to
				  revoke the exemption from withholding, the employee must file a new withholding
				  allowance certificate within ten days from the date the employee anticipates a
				  tax liability or on or before December 31 if a tax liability is anticipated for
				  the next tax year. See subrule 46.3(2).
d.
Withholding from lottery
				winnings.
Every person, including employees and agents of the Iowa
				lottery authority, making any payment of "winnings subject to withholding"
				shall deduct and withhold a tax in an amount equal to 5 percent of the
				winnings. The tax shall be deducted and withheld upon payment of the winnings
				to a payee by the person or payer making this payment. Any person or payee
				receiving a payment of winnings subject to withholding must furnish the payer
				with a statement as is required under Treasury Regulation §31.3402(q)-1,
				paragraph "e," with the information required by that paragraph. Payers of
				winnings subject to withholding must file Form W-2G with the Internal Revenue
				Service, the department of revenue, and the payee of the lottery winnings by
				the dates specified in the Internal Revenue Code and in Iowa Code section
				42216..
				The W-2G form shall include the information described in Treasury Regulation
				§31.3402(q)-1, paragraph "f."
"Winnings subject to withholding" means any payment where the
				  proceeds from a wager exceed $600. The rules for determining the amount of
				  proceeds from a wager under Treasury Regulation Section 31.3402(q) -1,
				  paragraph "c," shall apply when determining whether the proceeds from Iowa
				  lottery winnings are great enough so that withholding is required. This rule
				  shall apply to winnings from tickets purchased from the Power ball and Hot
				  Lotto games or any other similar games to the extent the tickets were purchased
				  within the state of Iowa.
e.
Withholding from prizes from games of skill, games of chance, or
				raffles.
Every person making any payment of a "prize subject to
				withholding" must deduct and withhold a tax in an amount equal to 5 percent of
				the prize from a game of skill, a game of chance, or araffle. Effective July
				1,2015, any person making any payment of a "prize subject to withholding" for
				bingo must withhold tax in the same manner as persons making payments of prizes
				subject to withholding for games of skill, games of chance, or raffles. The tax
				must be deducted and withheld upon payment of the winnings to a payee by the
				person making this payment. Any person or payee receiving a payment of winnings
				subject to withholding must furnish the payer with a statement as is required
				under Treasury Regulation Section 31.3402(q) -1, paragraph "e," with the
				information required by that paragraph. Payers of prizes subject to withholding
				must file Form W-2G with the Internal Revenue Service, the department of
				revenue, and the payee of the prize by the dates specified in the Internal
				Revenue Code and in Iowa Code section
				42216..
				The W-2G form must include the information described in Treasury Regulation
				Section 31.3402(q) -1, paragraph "f."
"Prizes subject to withholding" means any payment of a prize
				  where the amount won exceeds $600.
f.
Withholding from winnings from
				pari-mutueI wagers.
Every person making any payment of "winnings
				subject to withholding" must deduct and withhold a tax in an amount equal to 5
				percent of the winnings from pari-mutuel wagers. The tax must be deducted and
				withheld upon payment of the winnings to a payee by the person making this
				payment. Any person or payee receiving a payment of winnings subject to
				withholding must furnish the payer with a statement as is required under
				Treasury Regulation Section 31.3402(q) -1, paragraph "e," with the information
				required by that paragraph. Payers of winnings subject to withholding must file
				Form W-2G with the Internal Revenue Service, the department of revenue, and the
				payee of the winnings by the dates specified in the Internal Revenue Code and
				in Iowa Code section 422.16. The W-2G form must include the information
				described in Treasury Regulation Section 31.3402(q) -1, paragraph "f."
"Winnings subject to withholding" are winnings in excess of
				  $1,000.
g.
Withholding from winnings from slot machines on riverboat gambling
				vessels and from winnings from slot machines at racetracks.
Withholding of state income tax is required if the winnings from slot machines
				on riverboat gambling vessels or from slot machines at racetracks exceed
				$1,200.