As a result of recent legislation, the Iowa Workforce Development (Department) announced that employers will have lower state unemployment insurance (SUI) costs beginning in 2026 due to a reduced taxable wage base and a lower maximum SUI tax rate.

On June 5, 2025, Governor Kim Reynolds signed Senate File 607 into law, simplifying Iowa's UI tax tables and cutting the maximum employer tax rate from 9% to 5.4%, while also significantly reducing the portion of wages subject to SUI.

As a result of the new law, the taxable wage base for calendar year 2026 will decrease to $20,400, down from $39,500 in calendar year 2025.

Additionally, employers pay SUI taxes based on an assigned experience rate multiplied by the state's taxable wage base, which is set as a fraction of the prior year's average annual wage. SF 607 reduced that fraction from two-thirds to one-third of the average annual wage. The Department recalculates the average annual wage each year as part of the process used to determine maximum and minimum unemployment benefits. The average annual wage for 2024 was $61,098.90.

Ernst & Young insights

Employers should consider reviewing their payroll budgeting and forecasting for 2026 to account for the lower wage base, confirm that payroll systems are updated to apply the new threshold, and monitor future guidance from the Department regarding their SUI rate notices.

Employers should also continue to focus on unemployment claims management, as individual experience ratings will still affect overall tax liability despite these statutory reductions.