Senate File 365 - Introduced SENATE FILE 365 BY JOCHUM A BILL FOR An Act relating to the child and dependent care credit and the 1 early childhood development credit available against the 2 individual income tax, and including effective date and 3 retroactive applicability provisions. 4 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA: 5 TLSB 2195XS (3) 88 jm/jh

S.F. 365 Section 1. Section 422.12C, subsection 1, Code 2019, is 1 amended to read as follows: 2 1. The taxes imposed under this division , less the amounts 3 of nonrefundable credits allowed under this division , shall 4 be reduced by a child and dependent care credit equal to the 5 following percentages of the federal child and dependent care 6 credit provided in section 21 of the Internal Revenue Code, 7 without regard to whether or not the federal credit was limited 8 by the taxpayer’s federal tax liability: 9 a. For a taxpayer with net income of less than ten twelve 10 thousand seven hundred fifty dollars, seventy-five percent. 11 b. For a taxpayer with net income of ten twelve thousand 12 seven hundred fifty dollars or more but less than twenty 13 twenty-five thousand four hundred ninety dollars, sixty-five 14 percent. 15 c. For a taxpayer with net income of twenty twenty-five 16 thousand four hundred ninety dollars or more but less than 17 twenty-five thirty-one thousand eight hundred sixty dollars, 18 fifty-five percent. 19 d. For a taxpayer with net income of twenty-five thirty-one 20 thousand eight hundred sixty dollars or more but less than 21 thirty-five forty-four thousand six hundred ten dollars, fifty 22 percent. 23 e. For a taxpayer with net income of thirty-five forty-four 24 thousand six hundred ten dollars or more but less than forty 25 fifty thousand nine hundred eighty dollars, forty percent. 26 f. For a taxpayer with net income of forty fifty thousand 27 nine hundred eighty dollars or more but less than forty-five 28 fifty-seven thousand three hundred sixty dollars, thirty 29 percent. 30 g. For a taxpayer with net income of forty-five fifty-seven 31 thousand three hundred sixty dollars or more, zero percent. 32 Sec. 2. Section 422.12C, subsection 2, paragraph a, Code 33 2019, is amended to read as follows: 34 a. The taxes imposed under this division , less the amounts 35 -1- LSB 2195XS (3) 88 jm/jh 1/ 4

S.F. 365 of nonrefundable credits allowed under this division , may be 1 reduced by an early childhood development tax credit equal to 2 twenty-five percent of the first one thousand dollars which 3 the taxpayer has paid to others for each dependent, as defined 4 in the Internal Revenue Code, ages three through five for 5 early childhood development expenses. In determining the 6 amount of early childhood development expenses for the tax year 7 beginning in the 2006 calendar year only, such expenses paid 8 during November and December of the previous tax year shall 9 be considered paid in the tax year for which the tax credit 10 is claimed. This credit is available to a taxpayer whose net 11 income is less than forty-five fifty-seven thousand three 12 hundred sixty dollars. If the early childhood development 13 tax credit is claimed for a tax year, the taxpayer and the 14 taxpayer’s spouse shall not claim the child and dependent care 15 credit under subsection 1 . 16 Sec. 3. Section 422.12C, Code 2019, is amended by adding the 17 following new subsection: 18 NEW SUBSECTION . 5. Upon determination of the latest 19 cumulative inflation factor, the director shall multiply 20 each net income level set forth in subsection 1 or 2 by this 21 cumulative inflation factor, shall round off the resulting 22 product to the nearest one dollar, and shall incorporate the 23 result into the net income levels in subsection 1 or 2 for each 24 tax year beginning on or after January 1, 2019. 25 Sec. 4. EFFECTIVE DATE. This Act, being deemed of immediate 26 importance, takes effect upon enactment. 27 Sec. 5. RETROACTIVE APPLICABILITY. This Act applies 28 retroactively to tax years beginning on or after January 1, 29 2019. 30 EXPLANATION 31 The inclusion of this explanation does not constitute agreement with 32 the explanation’s substance by the members of the general assembly. 33 This bill increases the Iowa net income threshold levels 34 for purposes of calculating the Iowa child and dependent 35 -2- LSB 2195XS (3) 88 jm/jh 2/ 4

S.F. 365 child care tax credit and the early childhood development tax 1 credit available against the individual income tax. The Iowa 2 child and dependent care tax credit is a refundable credit 3 calculated as a percentage of the nonrefundable federal child 4 and dependent care tax credit, depending on the Iowa net income 5 of the taxpayer. The early childhood development tax credit 6 is a refundable credit equaling 25 percent of the first $1,000 7 which the taxpayer has paid to others for each dependent ages 8 three through five for early childhood development expenses. 9 IOWA CHILD AND DEPENDENT CHILD CARE TAX CREDIT. Currently, 10 there are seven graduated Iowa net income thresholds used to 11 calculate the credit. The bill increases these graduated 12 thresholds, but does not change the percentage of the 13 nonrefundable federal child and dependent care tax credit 14 used to calculate the Iowa child and dependent child care tax 15 credit. 16 Currently, the credit percentages in these seven Iowa 17 net income thresholds range from a high of 75 percent of 18 the federal credit for taxpayers with net income of less 19 than $10,000, to a low of 30 percent of the federal credit 20 for taxpayers with net income of $40,000 or more but less 21 than $45,000. Under the bill, the credit percentages in the 22 thresholds range from a high of 75 percent of the federal 23 credit for taxpayers with a net income of less than $12,750, 24 to a low of 30 percent of the federal credit for taxpayers with 25 net income of $50,980 or more but less than $57,360. 26 The bill also adjusts the future amount of each of the Iowa 27 net income amounts in the seven graduated Iowa net income 28 thresholds by indexing the thresholds to inflation. 29 EARLY CHILDHOOD DEVELOPMENT TAX CREDIT. The bill increases 30 the income threshold determining the eligibility of a taxpayer 31 for the early childhood development tax credit. The bill 32 increases the eligibility threshold from a taxpayer earning 33 $45,000 per year to $57,360 per year. By increasing the 34 eligibility threshold, taxpayers earning less than $57,360 are 35 -3- LSB 2195XS (3) 88 jm/jh 3/ 4

S.F. 365 now eligible to take the early childhood development tax credit 1 equaling 25 percent of the first $1,000 which the taxpayer has 2 paid to others for early childhood development expenses for 3 each dependent ages three through five. The bill also adjusts 4 the future amount of the net income threshold by indexing the 5 threshold to inflation. 6 EFFECTIVE DATE AND APPLICABILITY. The bill takes effect 7 upon enactment and applies retroactively to tax years beginning 8 on or after January 1, 2019. 9 -4- LSB 2195XS (3) 88 jm/jh 4/ 4