Senate File 460 - Introduced SENATE FILE 460 BY JOCHUM , KNOX , GIDDENS , WEINER , PETERSEN , QUIRMBACH , DONAHUE , DOTZLER , WINCKLER , BOULTON , WAHLS , BISIGNANO , T. TAYLOR , TRONE GARRIOTT , BENNETT , and CELSI A BILL FOR An Act relating to the child and dependent and early childhood 1 development tax credits, and including retroactive 2 applicability provisions. 3 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA: 4 TLSB 2399XS (3) 90 jm/jh

S.F. 460 Section 1. Section 422.12C, subsection 1, Code 2023, is 1 amended by striking the subsection and inserting in lieu 2 thereof the following: 3 1. The taxes imposed under this subchapter, less the amounts 4 of nonrefundable credits allowed under this subchapter, shall 5 be reduced by a child and dependent care credit equal to the 6 following percentages of the federal child and dependent care 7 credit provided in section 21 of the Internal Revenue Code, 8 without regard to whether or not the federal credit was limited 9 by the taxpayer’s federal tax liability: 10 a. For a taxpayer of net income of less than twenty-five 11 thousand dollars, one hundred percent. 12 b. For a taxpayer with net income of twenty-five thousand 13 dollars or more but less than forty thousand dollars, ninety 14 percent. 15 c. For a taxpayer with net income of forty thousand dollars 16 or more but less than sixty thousand dollars, seventy-five 17 percent. 18 d. For a taxpayer with net income of sixty thousand dollars 19 or more but less than ninety thousand dollars, fifty percent. 20 e. For a taxpayer with net income of ninety thousand dollars 21 or more, zero percent. 22 Sec. 2. Section 422.12C, Code 2023, is amended by adding the 23 following new subsection: 24 NEW SUBSECTION . 5. a. Upon determination of the latest 25 cumulative inflation factor, the director shall multiply 26 each net income level set forth in subsection 1 or 2 by the 27 cumulative inflation factor, shall round off the resulting 28 product to the nearest one dollar, and shall incorporate the 29 result into the net income levels in subsection 1 or 2 for each 30 tax year beginning on or after January 1, 2023. 31 b. For purposes of this subsection, “cumulative inflation 32 factor” means the product of the annual inflation factor for 33 the 2024 calendar year and all annual inflation factors for 34 subsequent calendar years as determined by section 422.4, 35 -1- LSB 2399XS (3) 90 jm/jh 1/ 3

S.F. 460 subsection 1, paragraph “a” . The cumulative inflation factor 1 applies to all tax years beginning on or after January 1 of 2 the calendar year for which the latest annual inflation factor 3 has been determined. Notwithstanding any other provision, 4 the annual inflation factor for the 2023 calendar year is one 5 hundred percent. 6 Sec. 3. RETROACTIVE APPLICABILITY. This Act applies 7 retroactively to January 1, 2023, for tax years beginning on 8 or after that date. 9 EXPLANATION 10 The inclusion of this explanation does not constitute agreement with 11 the explanation’s substance by the members of the general assembly. 12 This bill relates to the Iowa child and dependent care tax 13 credit and the early childhood development tax credit available 14 against the individual income tax. 15 IOWA CHILD AND DEPENDENT CARE TAX CREDIT. The Iowa child 16 and dependent care tax credit is a refundable credit calculated 17 as a percentage of the federal child and dependent care tax 18 credit, depending on the Iowa net income of the taxpayer. 19 Currently, there are seven graduated Iowa net income thresholds 20 used to calculate the credit. The bill reduces the number 21 of Iowa net income thresholds from seven thresholds to five 22 thresholds, but increases the Iowa child and dependent care tax 23 credit by increasing the allowable percentage of the federal 24 child and dependent care tax credit that may be used by the 25 taxpayer to calculate the Iowa child and dependent care tax 26 credit. 27 Currently, the credit percentages in these seven Iowa 28 net income thresholds range from a high of 75 percent of 29 the federal credit for taxpayers with net income of less 30 than $10,000, to a low of 30 percent of the federal credit 31 for taxpayers with net income of $40,000 or more but less 32 than $90,000. Under the bill, the credit percentages in the 33 thresholds range from a high of 100 percent of the federal 34 credit for taxpayers with a net income of less than $25,000, 35 -2- LSB 2399XS (3) 90 jm/jh 2/ 3

S.F. 460 to a low of 50 percent of the federal credit for taxpayers with 1 net income of $60,000 or more but less than $90,000. 2 The bill also adjusts the future amount of each of the 3 Iowa net income amounts in the five graduated Iowa net income 4 thresholds by indexing the thresholds to inflation. 5 EARLY CHILDHOOD DEVELOPMENT TAX CREDIT. The early childhood 6 development tax credit is a refundable credit equaling 25 7 percent of the first $1,000 which the taxpayer has paid to 8 others for each dependent ages three through five for early 9 childhood development expenses, if the taxpayer’s income is 10 less than $90,000. The bill adjusts the future amount of the 11 $90,000 Iowa net income threshold by indexing the threshold to 12 inflation. 13 APPLICABILITY. The bill applies retroactively to tax years 14 beginning on or after January 1, 2023. 15 -3- LSB 2399XS (3) 90 jm/jh 3/ 3