House Study Bill 686 - Introduced HOUSE FILE _____ BY (PROPOSED COMMITTEE ON WAYS AND MEANS BILL BY CHAIRPERSON SANDS) A BILL FOR An Act creating an individual income tax credit for qualified 1 adoption expenses paid or incurred in connection with 2 certain adoptions and including retroactive applicability 3 provisions. 4 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA: 5 TLSB 6200YC (3) 85 mm/sc

H.F. _____ Section 1. NEW SECTION . 422.12A Adoption tax credit. 1 1. For purposes of this section, unless the context 2 otherwise requires: 3 a. “Adoption” means the permanent placement in this 4 state of a child by the department of human services, by a 5 licensed agency under chapter 238, by an agency that meets the 6 provisions of the interstate compact in section 232.158, or 7 by a person making an independent placement according to the 8 provisions of chapter 600. 9 b. “Child” means an individual who is under the age of 10 eighteen years. 11 c. “Qualified adoption expenses” means unreimbursed expenses 12 paid or incurred in connection with the adoption of a child, 13 including medical and hospital expenses of the biological 14 mother which are incident to the child’s birth, welfare agency 15 fees, legal fees, and all other fees and costs which relate to 16 the adoption of a child. “Qualified adoption expenses” does 17 not include expenses paid or incurred in violation of state or 18 federal law. 19 2. The taxes imposed under this division, less the credits 20 allowed under section 422.12, shall be reduced by an adoption 21 tax credit equal to the amount of qualified adoption expenses 22 paid or incurred by the taxpayer during the tax year in 23 connection with the adoption of a child by the taxpayer, not to 24 exceed two thousand five hundred dollars per adoption. 25 3. Any credit in excess of the tax liability is refundable. 26 In lieu of claiming a refund, the taxpayer may elect to have 27 the overpayment shown on the taxpayer’s final, completed return 28 credited to the tax liability for the following tax year. 29 4. The department of revenue and the department of human 30 services shall each adopt rules to jointly administer this 31 section. 32 Sec. 2. Section 422.9, subsection 2, paragraph c, Code 2014, 33 is amended to read as follows: 34 c. Add the amount by which expenses paid or incurred 35 -1- LSB 6200YC (3) 85 mm/sc 1/ 3

H.F. _____ in connection with the adoption of a child by the taxpayer 1 exceed three percent of the net income of the taxpayer, or of 2 the taxpayer and spouse in the case of a joint return. The 3 expenses may include medical and hospital expenses of the 4 biological mother which are incident to the child’s birth and 5 are paid by the taxpayer, welfare agency fees, legal fees, and 6 all other fees and costs relating to the adoption of a child if 7 the child is placed by a child-placing agency licensed under 8 chapter 238 or by a person making an independent placement 9 according to the provisions of chapter 600 . If the taxpayer 10 claims an adoption tax credit under section 422.12A, the 11 taxpayer shall recompute for purposes of this subsection the 12 amount of the deduction by excluding the amount of qualified 13 adoption expenses, as defined in section 422.12A, used in 14 computing the adoption tax credit. 15 Sec. 3. RETROACTIVE APPLICABILITY. This Act applies 16 retroactively to January 1, 2014, for tax years beginning on 17 or after that date. 18 EXPLANATION 19 The inclusion of this explanation does not constitute agreement with 20 the explanation’s substance by the members of the general assembly. 21 This bill provides an individual income tax credit equal to 22 the amount of qualified adoption expenses paid or incurred by a 23 taxpayer during the tax year in connection with the adoption of 24 a child, which is defined in the bill as an individual who is 25 under the age of 18 years. The tax credit cannot exceed $2,500 26 per adoption. 27 The adoption of a child qualifies for the tax credit if the 28 adoption is completed by the department of human services, 29 a child-placing agency licensed under Code chapter 238, an 30 agency complying with the interstate compact on placement of 31 children in Code section 232.158, or a person petitioning for 32 an independent placement according to the provisions of Code 33 chapter 600. 34 In order to be “qualified adoption expenses” the expenses 35 -2- LSB 6200YC (3) 85 mm/sc 2/ 3

H.F. _____ must be paid or incurred by the taxpayer during the tax year, 1 unreimbursed, and connected with the adoption. “Qualified 2 adoption expenses” include medical and hospital expenses of 3 the biological mother which are incident to the birth of 4 the adopted child, welfare agency and legal fees, and all 5 other fees and costs relating to the adoption of the child. 6 “Qualified adoption expenses” does not include expenses paid or 7 incurred in violation of state or federal law. 8 Under Iowa law, a taxpayer may claim an itemized deduction 9 for the amount of certain adoption expenses that exceed 3 10 percent of the net income of the taxpayer. The bill provides 11 that taxpayers who claim the itemized deduction are required 12 to reduce that deduction by the amount of expenses used to 13 calculate the adoption tax credit. 14 Any credit in excess of the taxpayer’s liability is 15 refundable or may be carried forward one tax year at the 16 election of the taxpayer. 17 The bill applies retroactively to tax years beginning on or 18 after January 1, 2014. 19 -3- LSB 6200YC (3) 85 mm/sc 3/ 3