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:
- 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.
Qualifying Person with Disability
- 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
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
- 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:
- sole proprietorship
- joint venture
- farm operations
- cultivation of land for production of agricultural crops
- raising poultry
- 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:
- dental hygiene
- mortuary science
- occupational therapy
- osteopathic medicine
- physical therapy
- psychology and psychiatry
- speech pathology
Claiming the Deduction
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.
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 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.