Relating to the child and dependent care credit and the early childhood development credit available against the individual income tax, and including retroactive applicability provisions

The inclusion of this explanation does not constitute agreement with the explanation’s substance by the members of the general assembly. 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. 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 $25,000, to a low of percent of the federal credit for taxpayers with net income of $60,000 or more but less than $65,000. 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 $65,000 per year. By increasing the eligibility threshold, taxpayers earning less than $65,000 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. The bill also adjusts the future amount of the net income threshold by indexing the threshold to inflation. APPLICABILITY. The bill applies retroactively to tax years beginning on or after January 1, 2021.