IVRS MONTHLY BUSINESS TIPSMALL BUSINESS TAX CREDIT

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 40.21

Benefit for Hiring Persons with Disabilities

  • 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

Person with Disability is Someone Who:

  • 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

Qualifying Person with Disability

  • Can be any age; noage restrictions
  • Must be a new hire; acurrent employee who becomes disabled does not qualify
  • May hold more than onejob; 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

Must be a Small Business to Qualify

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
  • 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.

Qualifying Businesses

A qualifying business can be for profit or nonprofit and can include the following:

CorporationSole proprietorshipPartnershipJoint venture

AssociationCooperativeFarm operations

Franchise owned by a local employer if the other criteria are met

Claiming the Deduction

The employer claims the deduction on the Iowa 1040 individual income tax return under "other adjustments" or on the Iowacorporation income tax return under "other reductions."

The employer must submit a separate sheet with the tax returnwith the following information: the employee’sname, address, Social Security Number, date ofhiring, and total wages paid.

Claiming the Maximum Amount

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 yearas long as the employee worked fewer than 12 months.

Amending Returns

If a business employed a person with a disability before learning about this benefit, the employer may amend income tax returns to include thededuction. Returns can be amended within three years from the due date of the return.

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