HF 191 (LSB 1577YH (2) 86)

HOUSE FILE 191

BY  WESSEL-KROESCHELL

A BILL FOR

An Act providing an individual income tax credit equal to a percentage of the federal American opportunity tax credit and including retroactive applicability provisions.
BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA:

    Section 1.  NEW SECTION.  422.10A  American opportunity tax credit.
   1.  The taxes imposed under this division, less the credits allowed under section 422.12, shall be reduced by an American opportunity tax credit equal to twenty-five percent of the federal American opportunity tax credit provided in section 25A(i) of the Internal Revenue Code. Any credit in excess of the tax liability is refundable.
   2.  Married taxpayers electing to file separate returns or filing separately on a combined return may avail themselves of the American opportunity tax credit by allocating the American opportunity tax credit to each spouse in the proportion that each spouse’s respective net income bears to the total combined net income. Taxpayers affected by the allocation provisions of section 422.8 shall be permitted a deduction for the credit only in the amount fairly and equitably allocable to Iowa under rules prescribed by the director.
    Sec. 2.  RETROACTIVE APPLICABILITY.  This Act applies retroactively to January 1, 2015, for tax years beginning on or after that date.
EXPLANATION
The inclusion of this explanation does not constitute agreement with

the explanation’s substance by the members of the general assembly.
   This bill provides a state individual income tax credit equal to 25 percent of the federal American opportunity tax credit provided in section 25A(i) of the Internal Revenue Code (IRC). In general, the federal American opportunity tax credit, which is a modified version of the federal hope scholarship tax credit described in IRC §25A(b), is an education credit equal to a certain percentage of the tuition, fees, and course materials of attending a postsecondary educational institution for a taxpayer or the taxpayer’s spouse or dependent. The maximum credit is $2,500 per student, per tax year. The credit is available for the first four years of postsecondary education and is gradually phased out for taxpayers with incomes between $80,000 and $90,000 for a single taxpayer and between $160,000 and $180,000 for married taxpayers. The Iowa American opportunity tax credit will be available through tax year 2017, which is when the federal tax credit is set to expire. Any credit in excess of the tax liability is refundable.
   Although married taxpayers must file a joint return to receive the federal tax credit, married taxpayers electing to file separate returns or separately on a combined return may claim the Iowa American opportunity tax credit by allocating the credit according to each spouse’s respective net income.
   The bill applies retroactively to tax years beginning on or after January 1, 2015.