Taxes for someone who lives in Texas but will be working 100% remote for company in Iowa.

[TaxesHurtMyBrain]

My father is a Texas resident and has never been to or ever plans to reside in Iowa. But will be working 100% remote for company in Iowa. His employer wants him to to fill out an additional Iowa W4 for withholding state tax even though he does not live in Iowa or will ever work in Iowa. Is this normal?

I have been told by several people this is odd, and this could be because the employer does not want to comply with Texas employment laws.

Is any of this true? If so, how are you supposed to file taxes properly in this situation?

[TomD8]

There are a small handful of states that tax non-resident remote workers.  Iowa is not one of them.  Given the circumstances you describe, the employer should not withhold Iowa taxes from your father's pay.

Here is Iowa's law:

"The salary or other compensation of an employee or corporate officer who performs services related to businesses located in Iowa, or has an office in Iowa, are not subject to Iowa tax, if the services are performed while the taxpayer is outside of Iowa."

https://casetext.com/regulation/iowa-administrative-code/agency-701-revenue-department/title-v-indiv...

If they go ahead and withhold Iowa taxes anyway, your father will be able to obtain a complete refund at year's end by filing a non-resident Iowa tax return, on which he allocates zero income to Iowa.

[Rick19744]

I agree with @TomD8 but it looking at Iowa sourced information it appears that the employer will be required to withhold Iowa tax:

• If you look at the Iowa W-4, there is a section where a taxpayer can claim an exemption.  HOWEVER, it specifically states that a nonresident may not claim this exemption.
• When you look at Iowa withholding discussion on their website it provides the following; Every employer who maintains an office or transacts business in Iowa and who is required to withhold federal income tax on any compensation paid to employees for services performed in Iowa is required to withhold Iowa individual income tax from that compensation.
• But as noted by @TomD8 , you will get the withholding back when you file an Iowa tax return; albeit a clumsy method of handling the matter.
• The world of remote workers was an evolving state, but the pandemic has changed how and where employees work.  This area, state tax of remote workers, will be a patch work of differing state laws until the change in the sourcing is resolved by Congress or the Supreme Court down the road.  

[TomD8]

@Rick19744

Key phrase: “services performed in Iowa.”

[Rick19744]

Just seeing if you are paying attention.  Agree.