Bill Text: IA SF437 | 2021-2022 | 89th General Assembly | Introduced

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Bill Title: A bill for an act 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.

Spectrum: Partisan Bill (Democrat 18-0)

Status: (Introduced - Dead) 2021-02-25 - Subcommittee: Dawson, Goodwin, and Jochum. S.J. 469. [SF437 Detail]

Download: Iowa-2021-SF437-Introduced.html

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Senate File 437 - Introduced
SENATE FILE 437
BY WAHLS , RAGAN , LYKAM ,
QUIRMBACH , J. SMITH ,
MATHIS , CELSI , TRONE
GARRIOTT , GIDDENS ,
KINNEY , T. TAYLOR , JOCHUM ,
BISIGNANO , BOLKCOM ,
BOULTON , DOTZLER , HOGG ,
and PETERSEN
A BILL FOR
An Act 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.
BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA:
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Section 1. Section 422.12C, subsection 1, Code 2021, is
amended to read as follows:
1. The taxes imposed under this subchapter , less the amounts
of nonrefundable credits allowed under this subchapter , shall
be reduced by a child and dependent care credit equal to the
following percentages of the federal child and dependent care
credit provided in section 21 of the Internal Revenue Code,
without regard to whether or not the federal credit was limited
by the taxpayer’s federal tax liability:
a. For a taxpayer with net income of less than ten
twenty-five thousand dollars, seventy-five percent.
b. For a taxpayer with net income of ten twenty-five
thousand dollars or more but less than twenty thirty-five
thousand dollars, sixty-five percent.
c. For a taxpayer with net income of twenty thirty-five
thousand dollars or more but less than twenty-five forty
thousand dollars, fifty-five percent.
d. For a taxpayer with net income of twenty-five forty
thousand dollars or more but less than thirty-five fifty
thousand dollars, fifty percent.
e. For a taxpayer with net income of thirty-five fifty
thousand dollars or more but less than forty sixty thousand
dollars, forty percent.
f. For a taxpayer with net income of forty sixty thousand
dollars or more but less than forty-five sixty-five thousand
dollars, thirty percent.
g. For a taxpayer with net income of forty-five sixty-five
thousand dollars or more, zero percent.
Sec. 2. Section 422.12C, subsection 2, paragraph a, Code
2021, is amended to read as follows:
a. The taxes imposed under this subchapter , less the amounts
of nonrefundable credits allowed under this subchapter , may
be reduced by an early childhood development tax credit equal
to twenty-five percent of the first one thousand dollars
which the taxpayer has paid to others for each dependent, as
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S.F. 437
defined in the Internal Revenue Code, ages three through five
for early childhood development expenses. In determining the
amount of early childhood development expenses for the tax year
beginning in the 2006 calendar year only, such expenses paid
during November and December of the previous tax year shall
be considered paid in the tax year for which the tax credit
is claimed. This credit is available to a taxpayer whose net
income is less than forty-five sixty-five thousand dollars. If
the early childhood development tax credit is claimed for a tax
year, the taxpayer and the taxpayer’s spouse shall not claim
the child and dependent care credit under subsection 1 .
Sec. 3. Section 422.12C, Code 2021, is amended by adding the
following new subsection:
NEW SUBSECTION . 5. a. Upon determination of the latest
cumulative inflation factor, the director shall multiply
each net income level set forth in subsection 1 or 2 by this
cumulative inflation factor, shall round off the resulting
product to the nearest one dollar, and shall incorporate the
result into the net income levels in subsection 1 or 2 for each
tax year beginning on or after January 1, 2021.
b. For purposes of this subsection, “cumulative inflation
factor” means the product of the annual inflation factor for
the 2021 calendar year and all annual inflation factors for
subsequent calendar years as determined by section 422.4,
subsection 1, paragraph “a” . The cumulative inflation factor
applies to all tax years beginning on or after January 1 of
the calendar year for which the latest annual inflation factor
has been determined. Notwithstanding any other provision,
the annual inflation factor for the 2021 calendar year is one
hundred percent.
Sec. 4. RETROACTIVE APPLICABILITY. This Act applies
retroactively to tax years beginning on or after January 1,
2021.
EXPLANATION
The inclusion of this explanation does not constitute agreement with
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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 25 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 75 percent of
the federal credit for taxpayers with net income of less
than $10,000, to a low of 30 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 75 percent of the federal
credit for taxpayers with a net income of less than $25,000,
to a low of 30 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
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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 25 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.
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