Iowa offers a vibrant environment for business, with over 272,000 small businesses employing about 46% of the state’s workforce. Whether you’re an established business owner or planning to start a new venture, understanding the tax landscape in Iowa is crucial. This guide provides an overview of the various taxes small businesses in Iowa must navigate, including tax rates, filing requirements, and deadlines.
Types of Business Taxes in Iowa
Business owners in Iowa may be subject to various taxes depending on their business structure, activities, and revenue. Here’s a breakdown of the main types of taxes:
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- Corporate Income Tax
- Applicable Entities: C corporations, LLCs with C corp elections
- Tax Rate: 5.5%–7.1% (taxable income is reduced by 50% of federal income taxes paid)
- Filing Requirements: File Form IA 1120 by the last day of the fourth month after the tax year ends.
- Estimated Payments: Required if liability, after allowable credits, exceeds $1,000. Payments are due quarterly on the last day of the tax year’s fourth, sixth, ninth, and 12th months.
- Pass-Through Entity (PTE) Tax
- Applicable Entities: Businesses taxed as a partnership or S corporation
- Tax Rate: 6%
- Filing Requirements: File Form IA 1065 (for partnerships) or Form IA 1120S (for S corporations) by the last day of the fourth month after the tax year ends.
- Estimated Payments: Required if liability, after allowable tax credits, exceeds $1,000. Payments are due quarterly on the last day of the tax year’s fourth, sixth, ninth, and 12th months.
- Sales and Use Tax
- Applicable Activities: Sales of tangible personal property, specified digital products, or taxable services
- Tax Rate: 6% (1% optional local rate may apply)
- Filing Requirements: File Form 32-028 monthly or annually based on sales volume.
- Withholding Tax
- Applicable Entities: Employers with employees
- Tax Rate: Varies
- Filing Requirements: File Form 44-095 quarterly by the last day of the month after the quarter.
- Estimated Payments: Monthly filers must make two monthly payments per quarter (in addition to the quarterly return); semi-monthly filers must make six payments per quarter (in addition to the quarterly return).
- Unemployment Insurance Tax
- Nonresident Withholding Tax
- Applicable Entities: Pass-through entities with nonresident members
- Tax Rate: 5.7% on distributive share income
- Filing Requirements: File Form IA 1065 (for partnerships) or Form IA 1120S (for S corporations) by the last day of the fourth month after the tax year ends.
How to File and Pay Iowa Business Taxes
Business taxes in Iowa can be filed and paid through various methods:
- Online Filing and Payment: Use GovConnect Iowa for electronic submissions and payments.
- Mail: Send forms and payments to the address indicated (where applicable).
Important Deadlines
Keep track of these key dates to avoid penalties:
- Corporate Income Tax Returns: Due by the last day of the fourth month after the tax year ends
- Estimated Tax Payments: Due quarterly on the last day of the tax year’s fourth, sixth, ninth, and 12th months
- Sales and Use Tax Returns: Monthly or annual filing based on sales volume
- Withholding Tax Returns: Due quarterly by the last day of the month after the quarter
- Unemployment Insurance Reports: Due quarterly by the last day of the month following the filing period
Tax Credits and Incentives
Iowa offers several tax credits and incentives for small businesses, including:
- New Jobs Tax Credit: Available to corporate income taxpayers who participate in the New Jobs Training Program and commit to expanding their Iowa employment base by at least 10%. The one-time tax credit is worth up to $2,292 per new employee based on wages paid and can be carried forward for up to ten years.
- Investment Tax Credit: Available to eligible businesses approved by the Iowa Economic Development Authority under the High Quality Jobs Program. The credit is worth up to 10% of the qualifying investment in real property, including any buildings and structures located on the real property, the cost of machinery and equipment, and the cost of improvements to real property. It can be carried forward for up to seven years.
- Research activities tax credit: Available to businesses that are allowed the Section 41 federal research credit and engaged in manufacturing, life sciences, software engineering, or aviation and aerospace. The credit equals the sum of 1) 6.5% of the excess of qualified research expenses (qualified wages, supplies, and contract research expenses) over a base amount and 2) 6.5% of basic research payments.
Check out our article on tax credits for Iowa businesses to learn more.
Iowa’s business tax breakdown by business type
Business taxes can get complicated, so below, we’ve included a chart that breaks down the taxes different business structures usually pay.
Keep in mind that pass-through entities don’t pay federal income taxes themselves—the obligation is passed on to their business owners or shareholders, who pay them through their personal income tax returns.
| Business type | Personal income tax | PTE election tax | Corporate income tax | Sales and use tax | Withholding tax | Unemployment tax | Federal income taxes |
| C corporation | No | No | Yes | Yes, if applicable | Yes, if you hire employees | Yes, if you hire employees | Yes |
| S corporation | Yes (pass-through), if not making the PTE election | Yes, if it makes the election | No | Yes, if applicable | Yes, if you hire employees | Yes, if you hire employees | Yes (pass-through) |
| LLC | Yes (pass-through), if not making the PTE election | Depends on how it’s structured | Depends on how it’s structured | Yes, if applicable | Yes, if you hire employees | Yes, if you hire employees | Yes (pass-through) |
| Partnership | Yes (pass-through), if not making the PTE election | Yes, if it makes the election | No | Yes, if applicable | Yes, if you hire employees | Yes, if you hire employees | Yes (pass-through) |
| Sole proprietorship | Yes (pass-through) | No | No | Yes, if applicable | Yes, if you hire employees | Yes, if you hire employees | Yes, by way of individual income tax |
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Iowa Small Business Taxes: The Employer’s Complete 2023 Guide
If you’re looking for a welcome environment to start a new business with as few startup costs as possible, consider adding Iowa to your shortlist. Just make sure to read up on the state’s business tax obligations, including:
What business taxes do you have to pay in Iowa?
Most small business owners can expect to pay state income taxes, sales and use tax, employer taxes, and any relevant industry or local taxes.
Iowa personal income tax
Pass-through entities such as sole proprietorships, partnerships, and limited liability companies (also known as LLCs) pay taxes that are “passed through” to the personal tax returns of their owners, partners, or members. The personal income tax rate in Iowa for the 2023 tax year ranges from 4.4% to 6%.
How to pay
Iowa personal tax returns (Form IA 1040) are due on April 30. Taxpayers file their returns with the state Department of Revenue using the online eFile and Pay system. Alternatively, you can submit your tax return in person or by mail using the appropriate address listed here.
The state requires pass-through entities to pay estimated taxes on a quarterly basis. These payments are due by:
- The last day of the fourth month of the fiscal year (April 30 for calendar filers)
- The last day of the sixth month of the fiscal year (June 30 for calendar filers)
- The last day of the ninth month of the fiscal year (September 30 for calendar filers)
- The last day of the first month of the following fiscal year (January 31 for calendar filers)
Pay online via eFile and Pay, or mail your estimated tax payment along with payment voucher Form IA 1040ES to the address below:
Iowa Department of Revenue
PO Box 10466
Des Moines IA 50306-0466
Partnerships and LLCs taxed as partnerships have an additional income tax requirement. These entities must also file partnership tax returns (Form IA 1065) by May 1. Partnerships that meet certain criteria are required to file electronically through the federal Modernized eFile (MeF) system, but all partnerships are encouraged to use this method to submit their returns. If you choose to file a paper return, send it to the following address:
Income Tax Return Processing
Iowa Department of RevenuePO Box 9187
Des Moines, Iowa 50306-9187
For more information on filing Iowa individual income taxes, review the Department of Revenue’s expanded instructions here. If you’d like details on how to file an Iowa partnership return, review the form instructions here.
Iowa Pass-Through Entity Tax
Iowa’s new Pass-Through Entity Tax (PTET) allows partnerships, S corporations, and LLCs that are taxed as partnerships or S corporations to be taxed as an entity (rather than taxing the partners or members individually) if they choose to do so. Companies that take this election receive a percentage of their PTET as a refundable tax credit.
Because the PTET was only signed into law this year, some details—including the tax rate and calculation—haven’t been finalized for 2023 yet. However, the Department of Revenue anticipates that the rate for this tax year will be 6%.
How to pay
You can make the PTET election for your business by either:
- Making the election on your partnership return or S corporation return (Form IA 1120S)
- Submitting the PTET election form via the online GovConnectIowa portal before your partnership or S corporation’s tax return due date
Note that this election only lasts for one year, so you’ll need to make a separate election for each tax year. Tax payments can be made online via GovConnectIowa, MeF, or by check. If you choose to pay by mail, print out your payment voucher on GovConnectIowa.
For more information on the PTET, including frequently asked questions, visit the Iowa Department of Revenue website.
Iowa corporate income tax
The state of Iowa mandates that all corporations that are incorporated or do business in the state, as well as any LLCs that have elected to be taxed as C corporations, must pay corporate income taxes.
Iowa’s corporate tax rate in 2023 ranges from 5.5% to 8.4%.
How to pay
Corporations must file their tax returns (Form IA 1120) by the last day of the fourth month after the end of the fiscal year. For companies that follow the calendar year, this due date is April 30.
If your company meets any of the following conditions, the state requires you to file your tax return electronically via MeF:
- Has at least $250,000 in gross receipts for the tax year
- Claimed $25,000 or more in tax credits on their state return for the year
- Is filing a consolidated state tax return for the year
Companies that don’t meet any of these conditions and want to file by mail should send their return to the address below:
Corporation Tax Return Processing
Iowa Department of Revenue
PO Box 10468
Des Moines, IA 50306-0468
The state of Iowa also requires corporations to make quarterly estimated tax payments by the following deadlines if they owe $1,000 or more in taxes for the year after credits:
- The last day of the fourth month of the fiscal year
- The last day of the sixth month of the fiscal year
- The last day of the ninth month of the fiscal year
- The last day of the 12th month of the fiscal year
Corporations that owed more than $80,000 in taxes during the previous tax year must pay electronically via GovConnectIowa, MeF, direct debit, or ACH credit. If your business doesn’t meet the electronic payment threshold, you can send your payment by mail to the following address if you prefer:
Iowa Department of Revenue
PO Box 10466
Des Moines, Iowa 50306-0466
For further information on filing Iowa corporate income tax returns, review these instructions from the Department of Revenue.
Sales and use tax
If your company has a physical presence in Iowa and makes more than $100,000 in gross revenue from sales within the state, you must collect tax on the sales of physical products, certain digital products, and taxable services in Iowa. If you buy taxable products from out-of-state to use in your business and don’t pay sales tax on those items, you pay a use tax instead.
Iowa’s sales and use tax rate in 2023 is 6%.
How to pay
Before you can collect sales and use tax, you’ll need to register your business with the Iowa Department of Revenue. When you apply for your sales tax permit, you must estimate how much sales and use tax your business will collect during the tax year. This will determine your company’s sales and use tax filing frequency.
Businesses must file and pay sales and use tax on an annual, monthly, or seasonal basis, depending on their annual tax liability:
- Annual filers owe less than $1,200 in taxes annually. They file one return for the calendar year by January 31 of the following year.
- Monthly filers owe $1,200 or more in taxes annually. Returns for each month are due by the last day of the following month.
- Seasonal filers owe $1,200 or more in taxes in four or fewer months per year. Returns for each filing period are due by the last day of the following month.
File your sales and use tax returns (Form 32-028) and make any tax payments online through the GovConnectIowa portal. For more information on Iowa’s sales and use tax, review this guide from the state’s Department of Revenue. You can also find a list of return due dates for each filing frequency here.
Withholding tax
If your business has employees, you must withhold taxes from their wages and pay them to the Department of Revenue.
The amount you pay in withholding taxes is calculated using the Iowa withholding tables, percentages, or formulas. You can also use this calculator to estimate your withholding tax liability.
How to pay
Register your business for withholding taxes using the same online application for the Iowa sales and use tax permit. Once you complete your registration, the Department of Revenue will send you details on how to file and pay your withholding taxes.
Once your business is registered, you can file and pay your company’s withholding taxes online through the GovConnectIowa portal. Employers file on a semi-monthly, monthly, or quarterly basis—the filing frequency you’re assigned is determined by your withholding tax liability for the year. You can find more information about each filing frequency in the chart below, while due dates can be found here:
| Filing frequency | Tax liability | Filing obligations for each calendar quarter |
| Quarterly | Less than $6,000 annually (less than $500 monthly) | One quarterly return |
| Monthly | $6,000–$120,000 annually ($500–$10,000 monthly) | Two monthly deposits and one quarterly return |
| Semi-monthly | More than $120,000 annually (more than $10,000 monthly or $5,000 semi-monthly) | Six semi-monthly deposits and one quarterly return |
No matter your filing frequency, all employers must file a withholding tax return (Form 44-095) each quarter, even if you didn’t owe any taxes for the tax period. These can be filed online through GovConnectIowa, or mailed to the address below:
Withholding Tax Department
Iowa Department of Revenue
PO Box 10411
Des Moines, IA 50306-0411
You’ll also need to file your Form W-2 and 1099s online via GovConnectIowa by February 15. However, the state makes an exemption for businesses that didn’t withhold any taxes for the year.
For more information on Iowa’s withholding tax, visit the Department of Revenue website.
Unemployment insurance tax
Employers in Iowa also need to pay the state unemployment insurance tax, which covers unemployment benefits for qualifying former workers.
The 2023 unemployment tax rate in Iowa ranges from 1% to 7% of the first $36,100 of each employee’s earnings. The tax rate for new construction workers is 7%, while new employers outside of the construction industry are assigned a 1% tax rate.
How to pay
To pay unemployment taxes, first you’ll need to register your business with Iowa Workforce Development (IWD) through the myIowaUI online portal. Keep in mind that you shouldn’t register for a UI tax account until you’ve hired employees in the state and have begun to pay them wages.
You’ll also need to file contribution reports and make any tax payments on a quarterly basis. Reports and payments must be submitted through the myIowaUI portal by the last day of the month following the filing period. Quarterly reports should be submitted even if you didn’t pay any wages during that time.
For more information on Iowa’s unemployment taxes, refer to the IWD Unemployment Insurance Employer Handbook.
Other industry-related and local taxes
In addition to Iowa’s statewide sales and use tax, many jurisdictions levy an additional 1% local option sales tax. So, depending on where your business is located, you may be required to pay this tax as well.
Businesses in certain industries, and those that sell certain products or services, will need to pay additional taxes levied by the state. For instance, the state of Iowa imposes a franchise tax on certain financial institutions and companies offering specific financial services in the state. Businesses that sell tobacco, fuel, and rental cars are responsible for excise taxes on these goods and services.
To determine which state taxes your business is responsible for, contact your accountant or tax advisor.
Iowa business tax breakdown by business type
To make things easier for you, below we’ve included a chart so you can see at a glance what taxes different business entities are responsible for. Keep in mind that pass-through entities pay federal income taxes through the personal tax returns of their owners or members.
| Business type | State income taxes | Sales and use tax | Withholding tax | Unemployment insurance tax | Federal income taxes |
| C corporation | Yes | Yes, if applicable | Yes, if you hire employees | Yes, if you hire employees | Yes |
| S corporation | Yes | Yes, if applicable | Yes, if you hire employees | Yes, if you hire employees | Yes (pass-through) |
| LLC with C corp election | Yes | Yes, if applicable | Yes, if you hire employees | Yes, if you hire employees | Yes |
| LLC | Yes | Yes, if applicable | Yes, if you hire employees | Yes, if you hire employees | Yes (pass-through) |
| Partnership | Yes | Yes, if applicable | Yes, if you hire employees | Yes, if you hire employees | Yes (pass-through) |
| Sole proprietorship | Yes | Yes, if applicable | Yes, if you hire employees | Yes, if you hire employees | Yes, by way of individual income tax |
File your Iowa small business taxes with Gusto
Your federal and state tax obligations are a crucial part of running a successful business, and with Gusto’s powerful payroll and HR software, you can rest easy knowing that we’re here to keep track of the details—as well as any changes in your state’s tax code. Get in touch with a member of our team to learn more.
