Bills › 89th General Assembly
Relating to the child and dependent care and early childhood development tax credits, and including applicability provisions
Sponsored by the House Ways and Means Committee
Where it is now
- Done: IntroducedJanuary 12, 2021
- Done: SubcommitteeJanuary 13, 2021
- Done: House committeeJanuary 26, 2021
- Done: Passes the HouseFebruary 10, 202193–1
- Stopped: Senate committeeDied when the General Assembly ended
- Next: Passes the Senate
- Next: To the Governor
- Next: Signed into law
Died when the session ended The 2022 session adjourned on May 24, 2022, the General Assembly’s last regular session. Bills that didn’t pass both chambers died. What’s a funnel?
What’s in it
AI summary People earning up to $90,000 a year would be able to qualify for certain tax credits to help pay for childcare and early childhood development. Currently, these tax credits are only available to people who make less than $45,000. This change allows more families to receive money back on their taxes for expenses related to their children.1
Read the official explanation
This bill increases the maximum Iowa net income threshold level for purposes of calculating the Iowa child and dependent care credit and the early childhood development tax credit available against the individual income tax. CHILD AND DEPENDENT CARE CREDIT. Currently, an individual may claim percent of the federal child and dependent care credit provided in section of the Internal Revenue Code against the individual income tax if the individual’s net income is less than $45,000. Under the bill, an individual may claim percent of the federal child and dependent care credit provided in section of the Internal Revenue Code against the individual income tax if the individual’s net income is less than $90,000. 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 whose net income is less than $45,000 per year to less than $90,000 per year. By increasing the eligibility threshold, taxpayers whose net income is less than $90,000 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. APPLICABILITY. The bill applies to tax years beginning on or after January 1, 2021.
Senate subcommittee
Named February 17, 2021. It hasn’t reported yet.
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
Minimal Compare with other bills
AI summary This bill increases the maximum net income used to qualify for the Early Childhood Development and Child and Dependent Care tax credits from $45,000 to $90,000. The changes are projected to reduce net General Fund revenue by $0.6 million in fiscal year 2021, $6.4 million in fiscal year 2022, $4.2 million in fiscal year 2023, $4.5 million in fiscal year 2024, $4.9 million in fiscal year 2025, and $5.1 million in fiscal year 2026 and after. Implementation costs for the Department of Revenue are expected to be minimal.3
Read the fiscal note
Description
House File 230 increases the maximum net income amount used in determining eligibility for the Early Childhood Development (ECD) and Child and Dependent Care (CDC) Tax Credits. The maximum is increased from the current $45,000 to $90,000. The change is retroactive to tax years beginning on or after January 1, 2021.
Background
The federal CDC Tax Credit is equal to up to 35.0% of eligible child care expenses for qualified children and dependents. The Iowa CDC Tax Credit is calculated as a percentage of the federal CDC Tax Credit. The Iowa CDC Tax Credit ranges from 75.0% of the federal credit for taxpayers with net income of less than $10,000, to 30.0% for taxpayers with net income of $40,000 to $44,999. The Iowa CDC Tax Credit is not available to taxpayers with net income of $45,000 or more. The Iowa credit is refundable.
The Iowa ECD Tax Credit equals 25.0% of up to $1,000 (a maximum tax credit of $250) in eligible early childhood expenses incurred by households with children aged 3 to 5 and net income under $45,000. The Iowa ECD Tax Credit is also refundable.
Under this proposal, the top income eligibility limit for the Iowa CDC Tax Credit would be increased such that taxpayers with net income above $39,999 but less than $90,000 would be eligible to claim an Iowa CDC Tax Credit equal to 30.0% of their federal CDC Tax Credit. Taxpayers with eligible early childhood expenses and net income below $90,000 would be eligible to claim a tax credit of up to $250. Under current law and under the Bill, households may only claim one of the two tax credits (ECD or CDC) in each tax year (TY).
Assumptions
The number of taxpayers benefiting from the increase in the maximum net income amount for the CDC and ECD Tax Credits, as well as the tax credit value, was estimated by the Department of Revenue using the Department’s computer model of Iowa income tax returns. That model utilizes actual State and federal tax return data from TY 2019 to simulate tax returns filed for future tax years. The model gives the Department the ability to change tax parameters and determine the estimated fiscal impact of those changes on tax liability and State General Fund revenue.
The model results, by tax year, are shown in Table 1. The model simulation assumes that the contingent income tax system established in SF 2417 (2018 Tax Modifications Act) will be put in place the second tax year possible (TY 2024) under existing law. The contingent tax system redefines Iowa net income, and that redefinition results in the TY 2024 increase in the number of taxpayers benefiting from the changes contained in this Bill.
To convert tax year impacts to fiscal year impacts, the following timing assumptions are made:
- Fiscal year 2021 ends June 30, 2021. Given the retroactive application to TY 2021, 15.0% of the TY 2021 impact is assumed to fall in FY 2021 and 85.0% in FY 2022.
- Impacts for tax year 2022 and after are assumed to fall 65.0% in the first fiscal year and 35.0% in the second fiscal year.
Fiscal Impact
The changes to the Iowa CDC and ECD Tax Credits contained in the Bill are projected to reduce net General Fund revenue by the following amounts:
- FY 2021 = $0.6 million
- FY 2022 = $6.4 million
- FY 2023 = $4.2 million
- FY 2024 = $4.5 million
- FY 2025 = $4.9 million
- FY 2026 and after = $5.1 million
As refundable tax credits, the changes do not impact the calculation of the local option income surtax for schools. Expected implementation costs for the Department of Revenue are assumed to be minimal. Given the expanded number of taxpayers projected to claim the credits, enforcement costs for the Department will increase.
Additional Potential Fiscal Impact
Existing Iowa law provides for a significant change to Iowa’s individual income tax system once two General Fund revenue triggers are met. The first year that the triggers may be met is at the conclusion of FY 2022. Once implemented, this contingent income tax system is projected to reduce Iowa individual income tax by roughly $300.0 million per tax year. Since this Bill is projected to reduce General Fund revenue in FY 2022 and after, the Bill’s changes will modestly reduce the possibility of achieving both revenue triggers; as a consequence, the Bill could result in delayed implementation of the income tax reduction.Number of
Taxpayers
Average
Tax Credit
Tax Credit
Total
Number of
Taxpayers
Average
Tax Credit
Tax Credit
Total
Number of
Taxpayers
Average
Tax
Credit
Tax Credit
Total
TY 2021 24,530 171$ 4,194,672$ 1,555 68$ 105,746$ 26,085 165$ 4,300,418$ TY 2022 24,082 171 4,117,953 1,488 69 102,674 25,570 165 4,220,627 TY 2023 23,511 171 4,020,366 1,410 71 100,132 24,921 165 4,120,498 TY 2024 25,710 180 4,627,775 1,765 70 123,562 27,475 173 4,751,337 TY 2025 25,955 186 4,827,594 1,682 70 117,760 27,637 179 4,945,354 TY 2026 26,947 190 5,120,000 1,806 72 130,000 28,753 183 5,250,000 Resident Taxpayers Nonresident Taxpayers All Taxpayers CDC and ECD Tax Credit Net Income Maximum Increase Table 1
Estimated Taxpayer Benefit by Tax Year
Source
- Department of Revenue
- Dependent Care, Tax Credit · January 27, 2021
- Dependent Care, Tax Credit · January 26, 2021
- Dependent Care, Tax Credit · January 20, 2021
Family tree
Tried before
Earlier and later bills are matched by wording or an identical title.
Tried before
This idea has been filed in an earlier General Assembly. None became law, though one got through a chamber.
- HF 771 Relating to the child and dependent care and early childhood development tax credits, and …88th General Assembly · Passed House · same titlePassed a chamber
Matched by wording or an identical title.