HF 661 (LSB 2875YH (6) 91)

HOUSE FILE 661

BY  EHLERT, KONFRST, B. MEYER, JUDGE, LEVIN, JAMES, WILBURN, WICHTENDAHL, KURTH, GOSA, SRINIVAS, AMOS JR., R. JOHNSON, JACOBY, CROKEN, MADISON, BAGNIEWSKI, KRESSIG, MATSON, BAETH, SCHEETZ, TUREK, GJERDE, OLSON, ZABNER, SCHOLTEN, WESSEL-KROESCHELL, COOLING, and NIELSEN

A BILL FOR

An Act relating to child care, including the child and dependent care tax credit, a child care workforce matching grant program, a small business child care tax credit, and state child care assistance, and including applicability provisions.
BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA:

DIVISION I
CHILD AND DEPENDENT CARE TAX CREDIT

    Section 1.  Section 422.12C, subsection 1, Code 2025, 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 amount 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.
    Sec. 2.  RETROACTIVE APPLICABILITY.  This division of this Act applies retroactively to January 1, 2025, for tax years beginning on or after that date.
DIVISION II
CHILD CARE WORKFORCE MATCHING GRANT PROGRAM

    Sec. 3.  NEW SECTION.  237A.15  Child care workforce matching grant program.
   1.  For purposes of this section, “program” means the child care workforce matching grant program established in this section.
   2.  There is established a child care workforce matching grant program. Moneys appropriated by the general assembly to the department for the program shall be used for the following purposes:
   a.  To raise wages for persons employed by a child care facility.
   b.  To provide health insurance, paid leave, and retirement benefits for persons employed by a child care facility.
   c.  To raise the quality of the work environment at each child care facility.
   d.  To collect data to assess the needs of persons employed by a child care facility.
   e.  To assist persons employed by a child care facility to identify sources and apply for benefits for which a person may qualify.
   3.  The department shall adopt rules pursuant to chapter 17A to administer the program.
DIVISION III
SMALL BUSINESS CHILD CARE TAX CREDIT

    Sec. 4.  NEW SECTION.  237A.32  Small business child care tax credit.
   1.  As used in this section, “small business” means any enterprise which is located in this state, which is operated for profit and under a single management, and which has either fewer than twenty employees or an annual gross income of less than four million dollars computed as the average of the three preceding fiscal years. This definition does not apply to any program or activity for which a definition for small business is provided for the program or activity by federal law or regulation or other state law.
   2.  A small business may receive a child care tax credit for providing child care employee benefits to employees of the business. The credit may be applied against income tax imposed under chapter 422, subchapter II or III, the franchise tax imposed under chapter 422, subchapter V, the gross premiums tax imposed under chapter 432, or the moneys and credits tax imposed in section 533.329. The amount of the credit equals the costs to provide the benefit up to three thousand dollars per employee per year. 
   3.  The aggregate amount of tax credits authorized pursuant to this section shall not exceed a total of two million dollars per fiscal year, and shall be awarded on a first-come, first-served basis.
   4.  To be eligible for a small business child care tax credit, the small business must provide child care employee benefits to employees of the business through any of the following:
   a.  Build a new structure or rehabilitate an existing structure to be used as a child care center at or near the small business where the children of the employees of the business are provided child care. A small business may construct or rehabilitate the structure in conjunction with another business but only the actual cost of the business shall be considered in determining the credit. 
   b.  Operate or lease a child care center at or near the small business where the children of the employees of the business are provided child care. 
   5.  A taxpayer who elects to claim the small business child care tax credit shall not claim the employer child care tax credit under section 237A.31.
   6.  Any credit in excess of the tax liability is not refundable but the excess for the tax year may be credited to the tax liability for the following five years or until depleted, whichever is earlier.
   7.  The director of revenue shall adopt rules to implement this section.
    Sec. 5.  NEW SECTION.  422.12Q  Small business child care tax credit.
   1.  The taxes imposed under this subchapter, less the credits allowed under section 422.12, shall be reduced by a small business child care tax credit received pursuant to section 237A.32.
   2.  An individual may claim the tax credit allowed a partnership, S corporation, limited liability company, estate, or trust electing to have the income taxed directly to the individual. The amount claimed by the individual shall be based upon the pro rata share of the individual’s earnings of a partnership, S corporation, limited liability company, estate, or trust.
    Sec. 6.  Section 422.33, Code 2025, is amended by adding the following new subsection:
   NEW SUBSECTION.  33.  The taxes imposed under this subchapter shall be reduced by a small business child care tax credit received pursuant to section 237A.32.
    Sec. 7.  Section 422.60, Code 2025, is amended by adding the following new subsection:
   NEW SUBSECTION.  16.  The taxes imposed under this subchapter shall be reduced by a small business child care tax credit received pursuant to section 237A.32.
    Sec. 8.  NEW SECTION.  432.12P  Small business child care tax credit.
   The taxes imposed under this chapter shall be reduced by a small business child care tax credit received pursuant to section 237A.32.
    Sec. 9.  Section 533.329, subsection 2, Code 2025, is amended by adding the following new paragraph:
   NEW PARAGRAPH.  n.  The moneys and credits tax imposed under this section shall be reduced by a small business child care tax credit received pursuant to section 237A.32.
    Sec. 10.  RETROACTIVE APPLICABILITY.  This division of this Act applies retroactively to January 1, 2025, for tax years beginning on or after that date.
DIVISION IV
STATE CHILD CARE ASSISTANCE

    Sec. 11.  Section 237A.13, subsection 1, paragraph c, Code 2025, is amended to read as follows:
   c.  The child’s parent, guardian, or custodian is employed a minimum of thirty-two hours per week or an average of thirty-two hours per week during the month if the child requires basic care, or twenty-eight hours per week or an average of twenty-eight hours per week during the month if the child is a special needs child.
    Sec. 12.  Section 237A.13, subsection 2, paragraph a, Code 2025, is amended to read as follows:
   a.  (1)  One Two hundred sixty fifty percent of the federal poverty level applicable to the family size for children needing basic care.
   (2)  Two hundred ninety percent of the federal poverty level applicable to the family size for children needing special needs care.
    Sec. 13.  Section 237A.13, subsection 4, paragraph a, Code 2025, is amended by striking the paragraph and inserting in lieu thereof the following:
   a.  The department shall reimburse a provider at a rate equal to the rate the provider charges a private-pay family for child care.
    Sec. 14.  Section 237A.13, subsection 5, Code 2025, is amended to read as follows:
   5.  The department’s billing and payment provisions for the program shall allow providers to elect either biweekly or monthly billing and payment for child care provided under based on the number of hours of child care scheduled for a child enrolled in the program. The department shall remit payment to a provider within ten business days of receiving a bill or claim for services provided. However, if the department determines that a bill has an error or omission, the department shall notify the provider of the error or omission and identify any correction needed before issuance of payment to the provider. The department shall provide the notice within five business days of receiving the billing from the provider and shall remit payment to the provider within ten business days of receiving the corrected billing.
    Sec. 15.  Section 237A.13, subsection 6, Code 2025, is amended by striking the subsection.
    Sec. 16.  Section 237A.13, subsection 8, Code 2025, is amended by adding the following new paragraph:
   NEW PARAGRAPH.  e.  Persons deemed to be eligible for benefits under the state child care assistance program in accordance with section 237A.13A.
    Sec. 17.  NEW SECTION.  237A.13A  State child care assistance —— child care personnel.
   1.  Notwithstanding section 237A.13, subsections 1 and 2, a child shall be eligible for the state child care assistance program under section 237A.13 if a parent, guardian, or custodian meets the following requirements:
   a.  The parent, guardian, or custodian is employed at a child care facility, a child care home registered with the department, or an unregistered child care home with an agreement with the department to accept reimbursements from the state child care assistance program.
   b.  The parent, guardian, or custodian works an average minimum of thirty-two hours per week during the month in a position with a primary duty of providing child care directly to children, and is regularly counted in the minimum child-to-staff ratio established by the department by rule.
   c.  If the parent, guardian, or custodian is employed at a child care home or a child development home, the parent, guardian, or custodian does not provide child care to the parent, guardian, or custodian’s own child. A co-provider at a child development home may qualify for state child care assistance if such person meets all requirements set by this section and by the department by rule.
   d.  The parent, guardian, or custodian is not a substitute or an assistant at a child development home.
   e.  Based on the department’s evaluation of the parent, guardian, or custodian’s application for state child care assistance, the department has determined the parent, guardian, or custodian has a need for child care.
   2.  A director, co-director, or other administrative staff member of a child care facility may qualify for state child care assistance pursuant to subsection 1 if such person is regularly counted in the minimum child-to-staff ratio established by the department by rule.
   3.  A family participating in the state child care assistance program pursuant to eligibility established under this section shall make copayments for child care services received under the program based on the family’s household income.
   4.  The department shall adopt rules pursuant to chapter 17A to implement and administer this section.
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 child care and is separated into divisions.
   DIVISION I —— 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. This division strikes the Iowa net income thresholds, and specifies a taxpayer may claim a tax credit to reduce Iowa net income equal to the amount of the child and dependent care credit 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.
   The division applies retroactively to tax years beginning on or after January 1, 2025.
   DIVISION II —— CHILD CARE WORKFORCE MATCHING GRANT PROGRAM. This division establishes a child care workforce matching grant program (program). Moneys appropriated by the general assembly to the department of health and human services (HHS) for the program must be used to raise wages for persons employed by a child care facility; provide health insurance, paid leave, and retirement benefits for persons employed by a child care facility; raise the quality of the work environment at each child care facility; collect data to assess the needs of persons employed by a child care facility; and assist persons employed by a child care facility to identify sources and apply for benefits for which a person may qualify. The division requires HHS to adopt rules to administer the program.
   DIVISION III —— SMALL BUSINESS CHILD CARE TAX CREDIT. This division creates a small business child care tax credit available against the individual and corporate income taxes, the franchise tax, the insurance premiums tax, and the moneys and credits tax.
   The division defines “small business” as any enterprise located in this state, which is operated for profit under a single management and which has either fewer than 20 employees or an annual gross income of less than $4 million computed as the average of the three preceding fiscal years.
   The division allows a small business to receive a tax credit for providing child care employee benefits to employees of the business. The amount of the credit equals the costs to provide the benefit up to $3,000 per employee per year. The aggregate amount of tax credits cannot exceed a total of $2 million per fiscal year and are awarded on a first-come, first-served basis. The division requires a small business to provide child care employee benefits to employees through certain methods in order to be eligible for the small business child care tax credit.
   The division applies retroactively to tax years beginning on or after January 1, 2025.
   DIVISION IV —— STATE CHILD CARE ASSISTANCE. This division relates to state child care assistance (CCA).
   Under current law, to be eligible for the CCA program, a family must be described by one of six different circumstances and meet income requirements. One of the six eligibility circumstances is that a child’s parent, guardian, or custodian (parent) is employed a minimum of 32 hours per week or an average of 32 hours per week during the month if the child requires basic care, or 28 hours per week or an average of 28 hours per week during the month if the child is a special needs child. The division changes the work requirements to 28 hours per week or an average of 28 hours per week during the month for parents of any child.
   Under current law, a family is required to have income at or below 160 percent of the federal poverty level applicable to the family’s size (FPL) for a family of a child needing basic care; 200 percent of the FPL for a family of a special needs child; or 85 percent of the state median gross monthly income, whichever is lower. The division sets initial eligibility at the lesser of 85 percent of the state median gross monthly income, or 250 percent of the FPL for families of children needing basic care or 290 percent of the FPL for families of special needs children.
   The division requires HHS to reimburse child care providers participating in the CCA program at a rate equal to the rate the provider charges a private-pay family for child care.
   The division provides that HHS shall pay providers based on the number of hours of child care scheduled for a child enrolled in the CCA program instead of for child care provided.
   The division makes a child eligible for CCA if the child is in a family with a parent, guardian, or custodian who is employed at a child care facility, a child care home registered with HHS, or an unregistered child care home with an agreement with HHS to accept CCA reimbursements; and who meets certain requirements as detailed in the division (qualified parent).
   The division provides that a director, co-director, or other administrative staff of a child care facility may qualify as a qualified parent if such person is regularly counted in the minimum child-to-staff ratio established by HHS by rule.
   The division requires a family who participates in CCA to make copayments for services received from the program, if the family’s eligibility is based on a parent being a qualified parent.
   The division directs HHS to adopt rules to implement and administer the division’s provisions related to qualified parents.
   The division prohibits HHS from applying waiting list requirements for CCA on persons deemed eligible for CCA due to eligibility based on a qualified parent.
   The division makes a conforming change by striking Code section 237A.13(6).