SF 460 (LSB 2399XS (3) 90)

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 development tax credits, and including retroactive applicability provisions.
BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA:

    Section 1.  Section 422.12C, subsection 1, Code 2023, is amended by striking the subsection and inserting in lieu thereof the following:
   1.  The taxes imposed under this subchapter, less the amounts of nonrefundable credits allowed under this subchapter, shall be reduced by a child and dependent care credit equal to the following percentages of the federal child and dependent care credit provided in section 21 of the Internal Revenue Code, without regard to whether or not the federal credit was limited by the taxpayer’s federal tax liability:
   a.  For a taxpayer of net income of less than twenty-five thousand dollars, one hundred percent.
   b.  For a taxpayer with net income of twenty-five thousand dollars or more but less than forty thousand dollars, ninety percent.
   c.  For a taxpayer with net income of forty thousand dollars or more but less than sixty thousand dollars, seventy-five percent.
   d.  For a taxpayer with net income of sixty thousand dollars or more but less than ninety thousand dollars, fifty percent.
   e.  For a taxpayer with net income of ninety thousand dollars or more, zero percent.
    Sec. 2.  Section 422.12C, Code 2023, is amended by adding the following new subsection:
   NEW SUBSECTION.  5.  a.  Upon determination of the latest cumulative inflation factor, the director shall multiply each net income level set forth in subsection 1 or 2 by the cumulative inflation factor, shall round off the resulting product to the nearest one dollar, and shall incorporate the result into the net income levels in subsection 1 or 2 for each tax year beginning on or after January 1, 2023.
   b.  For purposes of this subsection, “cumulative inflation factor” means the product of the annual inflation factor for the 2024 calendar year and all annual inflation factors for subsequent calendar years as determined by section 422.4, subsection 1, paragraph “a”. The cumulative inflation factor applies to all tax years beginning on or after January 1 of the calendar year for which the latest annual inflation factor has been determined. Notwithstanding any other provision, the annual inflation factor for the 2023 calendar year is one hundred percent.
    Sec. 3.  RETROACTIVE APPLICABILITY.  This Act applies retroactively to January 1, 2023, 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 relates to the Iowa child and dependent care tax credit and the early childhood development tax credit available against the individual income tax.
   IOWA CHILD AND DEPENDENT CARE TAX CREDIT. The Iowa child and dependent care tax credit is a refundable credit calculated as a percentage of the federal child and dependent care tax credit, depending on the Iowa net income of the taxpayer. Currently, there are seven graduated Iowa net income thresholds used to calculate the credit. The bill reduces the number of Iowa net income thresholds from seven thresholds to five thresholds, but increases the Iowa child and dependent care tax credit by increasing the allowable percentage of the federal child and dependent care tax credit that may be used by the taxpayer to calculate the Iowa child and dependent care tax credit.
   Currently, the credit percentages in these seven Iowa net income thresholds range from a high of 75 percent of the federal credit for taxpayers with net income of less than $10,000, to a low of 30 percent of the federal credit for taxpayers with net income of $40,000 or more but less than $90,000. Under the bill, the credit percentages in the thresholds range from a high of 100 percent of the federal credit for taxpayers with a net income of less than $25,000, to a low of 50 percent of the federal credit for taxpayers with net income of $60,000 or more but less than $90,000.
   The bill also adjusts the future amount of each of the Iowa net income amounts in the five graduated Iowa net income thresholds by indexing the thresholds to inflation.
   EARLY CHILDHOOD DEVELOPMENT TAX CREDIT. The early childhood development tax credit is a refundable credit equaling 25 percent of the first $1,000 which the taxpayer has paid to others for each dependent ages three through five for early childhood development expenses, if the taxpayer’s income is less than $90,000. The bill adjusts the future amount of the $90,000 Iowa net income threshold by indexing the threshold to inflation.
   APPLICABILITY. The bill applies retroactively to tax years beginning on or after January 1, 2023.