Are security services or detective services taxable?
Yes, compensation from these services is subject to Iowa sales tax and to federal and Iowa income taxes. Security services include, but are not limited to, security guards, investigative services, and burglar or fire alarm systems. Detective service is the service of investigation for the purpose of obtaining information. This information also applies to security and detective services provided by law enforcement officers on a part-time basis.
Income Tax
Individuals who receive income from the performance of security services or detective services are required to report that income on their federal and Iowa income tax returns. This applies to income earned by an employee of the person/company for whom the service is provided and to income earned by a person who is providing the service as an independent contractor.
Which form shows income to be reported?
In the case of an employee of a security service or a detective service, the amount of wages paid to the employee should be shown on a W-2.
Independent contractors will receive a 1099 from the payer of the compensation. The 1099 will show the amount they must report when filing their tax returns. Payments received in cash are also reported as income, even if a 1099 is not given for those services.
Should income tax be withheld from paychecks?
Employees will have state and federal income tax withheld from their wages as they are paid according to Federal and state guidelines.
Independent contractors generally are not subject to withholding, and may, therefore, need to make individual estimated payments during the year to pay any tax due on income for services provided. For Iowa income tax purposes, individuals who expect to owe more than $200 in tax from income not subject to withholding should make quarterly estimates on the form IA 1040ES. Arrangements to have estimated payments automatically taken from a bank account can be made on eFile & Pay.
Amending returns
Anyone who has performed security services or detective services as an independent contractor without paying the appropriate income tax must amend past income tax returns. To amend Iowa income tax returns, use the IA1040X (pdf).
Sales Tax
Security services and detective services are subject to Iowa sales tax. Therefore, an independent contractor performing security services or detective services is required to obtain an Iowa sales tax permit, charge the tax to their customer, and remit that tax to the state. (Security services or detective services performed by an employee for an employer are not taxable.) An Iowa Business Tax Registration form should be completed to apply for a sales tax permit.
Sales tax applies to the full amount charged to the customer for providing a security service or detective service. However, mileage and other travel expenses, as well as lodging and meal expenses, are not taxable if separately identified, separately billed and reasonable in amount.
Anyone who has performed security services or detective services as an independent contractor without collecting the appropriate sales tax should complete an Iowa Business Tax Registration form to obtain a sales tax permit. Quarterly sales tax returns for past years in which sales tax was not remitted must be completed, and the appropriate sales tax must be remitted. The sales tax is still due, even though it was not collected from customers.
Reference Rule 701-26.69, Iowa Administrative Code
Questions?
If you have any questions regarding this information, e-mail the Department.
Federal Taxes
For forms and information on federal taxes, you may access the IRS Web site or call them at 1-800-829-1040.
78-917 (updated 9/05, new e-mail address)