701—304.15(422) Child and dependent care credit. There is a child and dependent care credit which is refundable to the extent the amount of the credit exceeds the taxpayer’s income tax liability less other applicable income tax credits. If a taxpayer claims the child and dependent care credit, the taxpayer cannot claim the early childhood development credit described in rule 701—304.31(422).
	304.15(1) Computation of the Iowa child and dependent care credit. The Iowa child and dependent care credit is computed as a percentage of the child and dependent care credit which is allowed for federal income tax purposes under Section 21 of the Internal Revenue Code. For tax years beginning on or after January 1, 2015, the Iowa credit is computed without regard to whether or not the federal credit was limited to the taxpayer’s federal tax liability. In addition, for tax years beginning on or after January 1, 2015, the Iowa credit will be allowed even if the taxpayer’s federal adjusted gross income is below $0. The credit is computed so that taxpayers with lower net incomes are allowed higher percentages of their federal child care credit than taxpayers with higher net incomes. The following is a schedule showing the percentages of federal child and dependent care credits allowed on the taxpayers’ Iowa returns on the basis of the net incomes of the taxpayers.

* Net income	Percentage of federal credit allowed for tax years beginning on or after January 1, 2006, and before January 1, 2021	Percentage of federal credit allowed for tax years beginning on or after January 1, 2021	
Less than $10,000	75%	75%	
$10,000 or more but less than $20,000	65%	65%	
$20,000 or more but less than $25,000	55%	55%	
$25,000 or more but less than $35,000	50%	50%	
$35,000 or more but less than $40,000	40%	40%	
$40,000 or more but less than $45,000	30%	30%	
$45,000 or more but less than $90,000	No Credit	30%	
$90,000 or more	No Credit	No Credit	
*Note that in the case of married taxpayers who have filed joint federal returns and elect to file separate returns or to file separately on the combined return form for Iowa purposes, the taxpayers must determine the child and dependent care credit by the schedule provided in this rule on the basis of their combined net incomes. The credit determined from the schedule must be allocated between the married taxpayers in the proportion that each spouse’s net income relates to the combined net income of the taxpayers.	
	304.15(2) Examples of computation of the Iowa child and dependent care credit. The following are examples of computation of the child and dependent care credit and the allocation of the credit between spouses in situations where married taxpayers have filed joint federal returns and are filing separate Iowa returns or are filing separately on the combined Iowa return form.
Example A: A married couple has a combined net income of $40,000. Both spouses were employed. They had a federal child and dependent care credit of $600 which related to expenses incurred for care of their two small children. One of the spouses had a net income of $30,000 and the second spouse had a net income of $10,000.
The taxpayers’ Iowa child and dependent care credit was $180 since they were entitled to an Iowa child and dependent care credit of 30 percent of their federal credit of $600. If the taxpayers elect to file separate Iowa returns, the $180 credit would be allocated between the spouses on the basis of each spouse’s net income as it relates to the combined net income of both spouses as shown below:

 	$180	×	$30,000	=	$135	 	child and dependent care credit for spouse with $30,000 net income	 	
 			$40,000			 		 	
 	 	 	 	 	 	 		 	
 	$180	×	$10,000	=	$45	 	child and dependent care credit for spouse with $10,000 net income	 	
 			$40,000			 		 	
 	 	 	 	 	 	 		 	
Example B: A married couple filed their Iowa return separately on a combined return. Both spouses were employed. They had a federal child and dependent care credit of $800 which related to expenses incurred for care of their children. One spouse had a net income of $25,000 and the other spouse had a net income of $12,500, so their combined net income was $37,500.
The taxpayers’ Iowa child and dependent care credit was $320, since they were entitled to an Iowa credit of 40 percent of their federal credit of $800. The $320 credit is allocated between the spouses on the basis of each spouse’s Iowa net income as it relates to the combined Iowa net income of both spouses as shown below:

 	$320	×	$25,000	=	$213	 	child and dependent care credit for spouse with $25,000 Iowa net income	 	
 			$37,500			 		 	
 	 	 	 	 	 	 		 	
 	$320	×	$12,500	=	$107	 	child and dependent care credit for spouse with $12,500 Iowa net income	 	
 			$37,500			 		 	
 	 	 	 	 	 	 		 	
	304.15(3) Computation of the Iowa child and dependent care credit for nonresidents and part-year residents. Nonresidents and part-year residents who have income from Iowa sources in the tax year may claim child and dependent care credits on their Iowa returns. The percentage of the federal credit allowed is determined based on the nonresident or part-year resident’s all-source net income. If the nonresident or part-year resident’s all-source net income is $90,000 or higher, the taxpayer will not qualify for the Iowa child and dependent care credit regardless of the amount of the taxpayer’s Iowa-source income. To compute the amount of child and dependent care credit that can be claimed on the Iowa return by a nonresident or part-year resident, the following formula shall be used:

 	Federal child and
dependent care credit	 	Percentage of federal
child and dependent
credit allowed on Iowa
return from table in
subrule 42.15(1) based on all-source net income	 	*Iowa net income	 	
 		×		×	All-source net
income	 	
*Iowa net income for purposes of determining the child care credit that can be claimed on the Iowa return by a nonresident or part-year resident taxpayer is the total Iowa-source income less the Iowa-source adjustments to income as computed on the Schedule IA 126.	
In cases where married taxpayers are nonresidents or part-year residents of Iowa and are filing separate Iowa returns or are filing separately on the combined Iowa return form, the child and dependent care credit allowable on the Iowa return should be allocated between the spouses in the ratio of the Iowa net income of each spouse to the combined Iowa net income of the taxpayers.
	304.15(4) Example of computation of the Iowa child and dependent care credit for nonresidents and part-year residents. The following is an example of the computation of the Iowa child and dependent care credit for nonresidents and part-year residents.
A married couple lives in Omaha, Nebraska. One of the spouses worked in Iowa and had an Iowa-source net income of $15,000. That spouse had an all-source net income of $20,000. The second spouse had an Iowa-source net income of $10,000 and an all-source net income of $15,000. The couple had a combined Iowa-source net income of $25,000 and a combined all-source net income of $35,000. The taxpayers had a federal child and dependent care credit of $800 which related to expenses incurred for the care of their two young children. The taxpayers’ Iowa child and dependent care credit is calculated below:

 	Federal child and
dependent care credit	 	Percentage of federal child and dependent credit allowed on Iowa return	 	Iowa-source net income	 	
 		 		 	All-source net
income	 	
 	$800	×	40%	=	$320	×	$25,000	=	$229	 	
 							$35,000			 	
The $229 credit is allocated between the spouses as shown below:	

 	$229	 	×	 	$15,000	=	$137 for spouse with Iowa-source net income of $15,000	 	
		 		 	$25,000				
 	 	 	 	 	 	 	 	 	
 	$229	 	×	 	$10,000	=	$92 for spouse with Iowa-source net income of $10,000	 	
		 		 	$25,000				
 	 	 	 	 	 	 	 	 	
This rule is intended to implement Iowa Code section 422.12C.
[ARC 8702B, IAB 4/21/10, effective 5/26/10; ARC 0337C, IAB 9/19/12, effective 10/24/12; ARC 1665C, IAB 10/15/14, effective 11/19/14; ARC 6149C, IAB 1/12/22, effective 2/16/22; Editorial change: IAC Supplement 11/2/22; Editorial change: IAC Supplement 10/18/23]