Income Tax Benefit for Iowa Employers Who Hire Persons with Disabilities
Iowa employers who are small businesses meeting specific criteria are allowed an additional deduction on their Iowa income tax returns for hiring persons with disabilities.
See Department Rules and Regulations, Iowa Administrative Code 302.21
Iowa income tax deduction for 65% of the wages paid in the first 12 months of employment
Maximum deduction of $20,000 per employee
In addition to the Targeted Jobs Tax Credit
Has a physical or mental impairment* which substantially limits one or more major life activities or
Has a history of impairment* or
Is regarded as having an impairment* or
Qualifies for the targeted jobs tax credit as a person with a disability undergoing vocational rehabilitation or
Has been certified by the State Division of Vocational Rehabilitation as having a disability
*impairment includes, but is not limited to, physiological disorders and conditions, cosmetic disfigurement, anatomical loss, and any mental or psychological disorder.
Can be any age; no age restrictions
Must be a new hire; a current employee who becomes disabled does not qualify
May hold more than one job; each employer may take the deduction
Can be employed full or part time
Must pass the business’ probationary period, which is six months if an employer does not have a written policy
Cannot be hired to replace another employee who was terminated within the previous 12 months, unless the termination was for misconduct in connection with employment. If the employee left voluntarily, the person with a disability qualifies
Only employers who meet the "small business" definition can claim the deduction for employing persons with disabilities.
To be considered a small business, the employer must have both of the following:
20 or fewer full-time equivalent employees. Full-time means any of the following:
A position requiring an average work week of 40 hours
One in which compensation is paid on a salaried full-time basis without regard to hours worked
An aggregation of any number of part-time positions which equal one full-time position
Full-time equivalent table
Hours: more than 0, but less than 15: 1/4 time
Hours: 15 or more, but less than 25: 1/2 time
Hours: 25 or more, but less than 35: 3/4 time
Hours: 35 or more: Full-time
Annual gross revenue of not more than $3 million. Annual gross revenue means total sales, before deducting returns and allowances but after deducting corrections and trade discounts, sales taxes, and excise taxes based on sales.
A qualifying business can be for profit or nonprofit and can include the following:
Cultivation of land for production of agricultural crops
Production of eggs, milk, fruit, other horticultural crops
Grazing or production of livestock
Franchise owned by a local employer if the other criteria are met
Production of timber, forest products, nursery products, or sod
Processor or distributor of farm products or supplies that provides spraying, harvesting, or other farm services
Corporate-owned business managed by a local employer
The practice of a profession requiring specialized knowledge and preparation such as:
Psychology and psychiatry
The employer claims the deduction on the Iowa 1040 individual income tax return under "other adjustments" or on the Iowa corporation income tax return under "other reductions."
The employer must submit a separate sheet with the tax return with the following information: the employee’s name, address, Social Security Number, date of hiring, and total wages paid.
If 65% of the employee’s wages does not meet the $20,000 maximum in a single tax year, the balance may be claimed the following year as long as the employee worked fewer than 12 months.
If a business employed a person with a disability before learning about this benefit, the employer may amend income tax returns to include the deduction. Returns can be amended within three years from the due date of the return.