Iowa Administrative Code › Agency 701 - Revenue Department › Title IV - Individual Income Tax › Chapter 307 - Withholding › Rule 701-307.1 - 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
				307.2(1) and 307.2(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 701-307.4 (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. Subrule 307.3(3) contains more information.
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
				422.16. 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 Powerball 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 a
				raffle. 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
				422.16. 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-mutuel 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.