- Knowledge Base Categories:
- School Accounting System
- Payroll
FAQ: Will the School Accounting System be updated to accommodate the changes with the modified calculations for Iowa State Income Tax, depending on if an employee has completed a new W4 or not?
Yes. The School Accounting System was updated in a recent release to include the changes in calculating Iowa State Income Tax (SIT) using the flat rate (3.8% for 2025), and computing the amount for allowances depending on if an employee has completed a new W4 or not.
As a reminder, the Taxes screen in the Employee File has the Use Old W4 Format field (in the State W4 Information section), which is enabled for Iowa SIT. If the employee completed a state W4 prior to 2024, the Use Old W4 Format field would be selected for Iowa SIT; otherwise, the field would be unselected if the employee completed a state W4 in 2024 or beyond.
The updated payroll calculation process for Iowa SIT is shown below:
Iowa SIT Calculation Formula:
Step 1: Annualized Gross Taxable Income (calculated by taking Iowa SIT Gross X Pay Periods Per Year) – Deduction Amount (from applicable Tax Table for Iowa SIT) = Iowa SIT Taxable Income
Step 2: Iowa SIT Taxable Income X 3.8% = Annualized Taxes
Step 3: (Annualized Taxes – Amount for Total Allowances (from Line 6 of new Iowa W4 form (i.e. for 2024 or 2025), or else if using old Iowa W4 form (i.e. for 2023 or earlier), multiply number of allowances X $40)) / Pay Periods Per Year = Amount of Iowa SIT to Withhold
Example 1: Assuming SIT Gross of $4,000, with 12 pay periods per year, using new Iowa W4 form, claiming Married with Spouse Having Earned Income and $850 Total Allowances
IA SIT Taxable Income = $4,000 X 12 = $48,000 – $12,000 (Deduction Amount from applicable Tax Table) = $36,000
Annualized Taxes = $36,000 X 3.80% = $1,368
Amount of Iowa SIT to Withhold = $1,368 – $850 Total Allowances (from Line 6 on new Iowa W4 form) = $518 / 12 = $43.17
Example 2: Assuming SIT Gross of $4,000, with 12 pay periods per year, using old Iowa W4 form, claiming Married and 2 allowances
IA SIT Taxable Income = $4,000 X 12 = $48,000 – $24,050 (Deduction Amount from applicable Tax Table) = $23,950
Annualized Taxes = $23,950 X 3.80% = $910.10
Amount of Iowa SIT to Withhold = $910.10 – $80 for total allowances (2 x $40 per allowance) = $830.10 / 12 = $69.18
Important Note: Any additional Iowa SIT amounts requested to be withheld (entered in the Additional Taxes section on the Taxes screen for Iowa SIT) are added to the calculated actual amount of taxes to withhold, no matter if a new or old state W4 form is completed.
Tip: The state encourages but does not require employees to complete a new state W4 form for 2025. If a new state W4 form is not completed, the calculations as noted above will be followed (as directed by the state).