Iowa no tax on tips calculator and $4.35 cash wage

Iowa conforms automatically: its return starts from federal taxable income with rolling conformity, so qualified tips are untaxed in Iowa in both 2025 and 2026 — though Iowa withholding cannot be adjusted for it.

Your Iowa tips

State where you work Qualified tips this year

Voluntary cash and card tips on your W-2, 1099 or Form 4137 — not service charges.

Tax year

2025202620272028

Filing status Other income in your AGI

Wages without the tips, plus any other income (both spouses if filing jointly).

Your occupation The 71 Treasury Tipped Occupation Codes in the final rule (TD 10044).

How you are paid

Employee (W-2) Self-employed (1099)

More options

Itemized deductions (if larger than the standard deduction)

State marginal rate override (%) Leave blank to use the state’s published rate for your bracket.

Federal income tax saved in 2026Deduction $18,000 at 12% $2,160

$18,000 of the $25,000 cap used (72%)

Qualified tips	$18,000
After the $25,000 cap	$18,000
Income phase-out (MAGI $48,000)	$0
Tips deduction	$18,000
Federal tax before → after	$3,580 → $1,420
Social Security & Medicare still due on tips	$1,377
Iowa 2026: State allows the federal tips amount ($18,000 × 3.8%)	$684
Total income tax saved	$2,844

What the estimate leaves out

A refund, not a bigger paycheck

The Department of Revenue explains that because the federal law passed after Iowa’s 2025 session, Iowa rules provide no withholding allowance for the tips deduction, and the 2026 Iowa W-4 cannot be changed for it. The benefit therefore shows up when you file — as a larger refund or smaller balance due — at Iowa’s flat 3.8% rate under Iowa Code § 422.5.

Iowa figures

Cash wage / minimum	$4.35 / $7.25
In force	July 1, 2026
Next change	none scheduled
Tipped threshold	More than $30 a month in tips
Tips on the 2025 return	state allows the federal tips amount. Iowa starts from federal taxable income with rolling conformity, and the Department states Iowa “will conform with the federal tax provisions related to no tax on tips.” Source: Iowa Department of Revenue
Tips on the 2026 return	state allows the federal tips amount. “Similar to tax year 2025, Iowa taxpayers will not be taxed on the qualified portion of tip income.” Source: Iowa Department of Revenue

Tipped pay

Iowa caps the tip credit at 40% of the $7.25 minimum ($2.90), so tipped workers must be paid at least $4.35 an hour in cash once they receive more than $30 a month in tips.

A Des Moines server

Federal savings on a $16,000 deduction are $1,890; Iowa adds about $608 at 3.8%, arriving with the 2026 refund. A 30-hour week at $4.35 plus $120 of tips clears the $218 minimum, so nothing is owed.

Check an Iowa workweek

Employer make-up owed$4.350 cash wage + tips must reach $7.25 an hour. $0

Minimum for the hours	$232
Cash wage paid	$139
Tips counted toward the minimum	$150
Your effective hourly pay	$9.04

How the make-up rule works

Where these figures come from

Iowa Department of Revenue · Iowa Division of Labor
Impact of One Big Beautiful Bill Act on Employee Withholding (2026)
Iowa Code 2026 § 422.5 (2025-12)
Minimum Wages for Tipped Employees (table by state) (2026-07-01)

Federal rules: how the deduction works. Nearby: Minnesota, Wisconsin, Illinois, Missouri, Nebraska, South Dakota.

Figures verified against primary sources on October 5, 2026