HF 2268 (LSB 5163HV (2) 85)

HOUSE FILE 2268

BY  COMMITTEE ON HUMAN RESOURCES

(SUCCESSOR TO HF 2082)

A BILL FOR

An Act providing an individual income tax credit for qualified adoption expenses paid or incurred in connection with certain adoptions and including retroactive applicability provisions.
BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA:

    Section 1.  NEW SECTION.  422.12A  Adoption tax credit.
   1.  For purposes of this section, unless the context otherwise requires: 
   a.  “Adoption” means the permanent placement in this state of an eligible individual by the department of human services, by a licensed agency under chapter 238, by an agency that meets the provisions of the interstate compact in section 232.158, or by a person making an independent placement according to the provisions of chapter 600.
   b.  “Child with special needs” means an individual, regardless of citizenship, who is under the age of eighteen years and who has been determined by the department of human services prior to the finalization of the adoption to be a child with physical or mental disabilities or an older or otherwise hard-to-place child. A child shall not fail to qualify as a child with special needs because the person adopting the child does not receive financial assistance pursuant to section 600.17.
   c.  “Eligible individual” means an individual who is under the age of eighteen years, or an individual who is unable, by reason of physical or mental disability, to live independently.
   d.  “Qualified adoption expenses” means unreimbursed expenses paid or incurred in connection with the adoption of an eligible individual, including medical and hospital expenses of the biological mother which are incident to the eligible individual’s birth, welfare agency fees, legal fees, and all other fees and costs which relate to the adoption of an eligible individual. “Qualified adoption expenses” does not include expenses paid or incurred in violation of state or federal law.
   2.  The taxes imposed under this division, less the credits allowed under section 422.12, shall be reduced by an adoption tax credit equal to the amount of qualified adoption expenses paid or incurred by the taxpayer during the tax year in connection with the adoption of an eligible individual by the taxpayer, not to exceed two thousand five hundred dollars per adoption, or five thousand dollars if the adopted eligible individual is a child with special needs.
   3.  Any credit in excess of the tax liability is refundable. In lieu of claiming a refund, the taxpayer may elect to have the overpayment shown on the taxpayer’s final, completed return credited to the tax liability for the following tax year.
   4.  The department of revenue and the department of human services shall each adopt rules to jointly administer this section.
    Sec. 2.  Section 422.9, subsection 2, paragraph c, Code 2014, is amended to read as follows:
   c.  Add the amount by which expenses paid or incurred in connection with the adoption of a child by the taxpayer exceed three percent of the net income of the taxpayer, or of the taxpayer and spouse in the case of a joint return. The expenses may include medical and hospital expenses of the biological mother which are incident to the child’s birth and are paid by the taxpayer, welfare agency fees, legal fees, and all other fees and costs relating to the adoption of a child if the child is placed by a child-placing agency licensed under chapter 238 or by a person making an independent placement according to the provisions of chapter 600.  If the taxpayer claims an adoption tax credit under section 422.12A, the taxpayer shall recompute for purposes of this subsection the amount of the deduction by excluding the amount of qualified adoption expenses, as defined in section 422.12A, used in computing the adoption tax credit.
    Sec. 3.  RETROACTIVE APPLICABILITY.  This Act applies retroactively to January 1, 2014, 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 an individual income tax credit equal to the amount of qualified adoption expenses paid or incurred by a taxpayer during the tax year in connection with the adoption of an eligible individual. The tax credit cannot exceed $2,500 per adoption, or $5,000 if the adopted eligible individual is a child with special needs.
   The adoption of a person qualifies for the tax credit if the adoption is completed by the department of human services, a child-placing agency licensed under Code chapter 238, an agency complying with the interstate compact on placement of children in Code section 232.158, or a person petitioning for an independent placement according to the provisions of Code chapter 600, and if the person to be adopted is to be permanently placed in this state and is either less than 18 years old or unable to live independently because of physical or mental disability.
   “Child with special needs” means an individual, regardless of citizenship, who is under 18 years of age and who has been determined by the department of human services prior to the finalization of the adoption to be a child with physical or mental disabilities or an older or otherwise hard-to-place child, regardless of whether the person adopting the child receives financial assistance pursuant to Code section 600.17.
   In order to be “qualified adoption expenses” the expenses must be paid or incurred by the taxpayer during the tax year, unreimbursed, and connected with the adoption. “Qualified adoption expenses” include medical and hospital expenses of the biological mother which are incident to the birth of the adopted individual, welfare agency and legal fees, and all other fees and costs relating to the adoption of the individual. “Qualified adoption expenses” does not include expenses paid or incurred in violation of state or federal law.
   Under Iowa law, a taxpayer may claim an itemized deduction for the amount of adoption expenses that exceed 3 percent of the net income of the taxpayer. The bill provides that taxpayers who claim the itemized deduction are required to reduce that deduction by the amount of expenses used to calculate the adoption tax credit.
   Any credit in excess of the taxpayer’s liability is refundable or may be carried forward one tax year at the election of the taxpayer.
   The bill applies retroactively to tax years beginning on or after January 1, 2014.