Relating to the child and dependent and early childhood development tax credits, and including retroactive applicability provisions

This bill relates to the Iowa child and dependent care tax credit and the early childhood development tax credit available against the individual income tax. IOWA CHILD AND DEPENDENT CARE TAX CREDIT. The Iowa child and dependent care tax credit is a refundable credit calculated as a percentage of the federal child and dependent care tax credit, depending on the Iowa net income of the taxpayer. Currently, there are seven graduated Iowa net income thresholds used to calculate the credit. The bill reduces the number of Iowa net income thresholds from seven thresholds to five thresholds, but increases the Iowa child and dependent care tax credit by increasing the allowable percentage of the federal child and dependent care tax credit that may be used by the taxpayer to calculate the Iowa child and dependent 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 $90,000. Under the bill, the credit percentages in the thresholds range from a high of 100 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 $90,000. The bill also adjusts the future amount of each of the Iowa net income amounts in the five graduated Iowa net income thresholds by indexing the thresholds to inflation. EARLY CHILDHOOD DEVELOPMENT TAX CREDIT. 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, if the taxpayer’s income is less than $90,000. The bill adjusts the future amount of the $90,000 Iowa net income threshold by indexing the threshold to inflation. APPLICABILITY. The bill applies retroactively to tax years beginning on or after January 1, 2023.