Bills › 88th General Assembly
Relating to the child and dependent care credit and the early childhood development credit available against the individual income tax, and including effective date and retroactive applicability provisions
Where it is now
- Done: IntroducedFebruary 21, 2019
- Done: SubcommitteeFebruary 25, 2019
- Stopped: Senate committeeDied when the General Assembly ended
- Next: Passes the Senate
- Next: House committee
- Next: Passes the House
- Next: To the Governor
- Next: Signed into law
Died when the session ended The 2020 session adjourned on June 14, 2020, the General Assembly’s last regular session. Bills that didn’t pass both chambers died. What’s a funnel?
What’s in it
This bill increases the Iowa net income threshold levels for purposes of calculating the Iowa child and dependent child care tax credit and the early childhood development tax credit available against the individual income tax. The Iowa child and dependent care tax credit is a refundable credit calculated as a percentage of the nonrefundable federal child and dependent care tax credit, depending on the Iowa net income of the taxpayer. The early childhood development tax credit is a refundable credit equaling percent of the first $1,000 which the taxpayer has paid to others for each dependent ages three through five for early childhood development expenses.
Read the full explanation
IOWA CHILD AND DEPENDENT CHILD CARE TAX CREDIT. Currently, there are seven graduated Iowa net income thresholds used to calculate the credit. The bill increases these graduated thresholds, but does not change the percentage of the nonrefundable federal child and dependent care tax credit used to calculate the Iowa child and dependent child care tax credit. Currently, the credit percentages in these seven Iowa net income thresholds range from a high of percent of the federal credit for taxpayers with net income of less than $10,000, to a low of percent of the federal credit for taxpayers with net income of $40,000 or more but less than $45,000. Under the bill, the credit percentages in the thresholds range from a high of percent of the federal credit for taxpayers with a net income of less than $12,750, to a low of percent of the federal credit for taxpayers with net income of $50,980 or more but less than $57,360. The bill also adjusts the future amount of each of the Iowa net income amounts in the seven graduated Iowa net income thresholds by indexing the thresholds to inflation. EARLY CHILDHOOD DEVELOPMENT TAX CREDIT. The bill increases the income threshold determining the eligibility of a taxpayer for the early childhood development tax credit. The bill increases the eligibility threshold from a taxpayer earning $45,000 per year to $57,360 per year. By increasing the eligibility threshold, taxpayers earning less than $57,360 are now eligible to take the early childhood development tax credit equaling percent of the first $1,000 which the taxpayer has paid to others for early childhood development expenses for each dependent ages three through five. The bill also adjusts the future amount of the net income threshold by indexing the threshold to inflation. EFFECTIVE DATE AND APPLICABILITY. The bill takes effect upon enactment and applies retroactively to tax years beginning on or after January 1, 2019.
Senate subcommittee
Named February 25, 2019. It hasn’t reported yet.
- Sen. Randy Feenstra R
- Sen. Pam Jochum D
- Sen. R. Smith
Three legislators hear a bill first and recommend what the committee should do; it’s the best time to weigh in. How to take part
Fiscal note
AI summary This bill increases the income limits for the Child and Dependent Care Tax Credit and the Early Childhood Development Tax Credit and adjusts them for inflation in future years. These changes are projected to decrease net General Fund revenue by $0.1 million in fiscal year 2019, $2.4 million in fiscal year 2020, $2.9 million in fiscal year 2021, $2.9 million in fiscal year 2022, and $3.6 million in fiscal year 2023. Future revenue reductions are expected to increase at the rate of inflation.2
Read the fiscal note
Description
Senate File 365 increases the tax year 2019 income brackets and maximums for the existing Child and Dependent Care Tax Credit and Early Childhood Development Tax Credit. For future tax years, the Bill also indexes both credits’ income brackets and maximums for annual inflation. The changes are effective for tax years beginning on or after January 1, 2019.
Background
The federal tax code allows for a Child and Dependent Care Tax Credit for qualified expenses associated with the care of children under 13 and other dependents who are not able to care for themselves due to mental or physical disabilities. The credit is equal to 35.0% of eligible expenses for taxpayers with federal adjusted gross income (AGI) of $15,000 or less, and the credit percentage decreases to 20.0% for taxpayers with AGI in excess of $43,000. The maximum annual federal credit is $3,000 for one qualified dependent and $6,000 for two or more.
The Iowa Child and Dependent Care Tax Credit is available to taxpayers with net income below $45,000. The Iowa credit is a percentage of the credit allowed for federal tax purposes. The Iowa credit percentage is a sliding scale based on the taxpayer’s or taxpayers’ Iowa net income. The Iowa Early Childhood Development Tax Credit is equal to 25.0% of the first $1,000 of qualifying expenses paid for each dependent from the ages of three to five. The maximum qualifying Iowa net income for this credit is $44,999.
Taxpayers may only claim one of the two credits for a given tax year. The tax brackets and income limits under current law are not adjusted annually. The current net income limits are shown in Table 1.
Assumptions
The Bill increases the Iowa net income limit for both credits by 27.5% (to $57,360) for tax year 2019. The intermediate brackets for the Child and Dependent Care Tax Credit are also increased by 27.5%. For future tax years, all brackets and limits are indexed for inflation. Both tax credits are refundable, so they do not impact the calculation of the local option income surtax for schools.
Fiscal Impact
The changes to the two tax credits are projected to decrease net General Fund revenue by the following amounts:
- FY 2019 = $0.1 million
- FY 2020 = $2.4 million
- FY 2021 = $2.9 million
- FY 2022 = $2.9 million
- FY 2023 = $3.6 million
For future fiscal years, the revenue reduction is projected to increase at the rate of inflation.
Source
- Iowa Department of Revenue
- Child and Dependent Tax Credit Income Caps · February 26, 2019
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88th General Assembly
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