Senate File 437 - IntroducedA Bill ForAn Act 1relating to the child and dependent care credit and
2the early childhood development credit available against
3the individual income tax, and including retroactive
4applicability provisions.
5BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA:
1   Section 1.  Section 422.12C, subsection 1, Code 2021, is
2amended to read as follows:
   31.  The taxes imposed under this subchapter, less the amounts
4of nonrefundable credits allowed under this subchapter, shall
5be reduced by a child and dependent care credit equal to the
6following percentages of the federal child and dependent care
7credit provided in section 21 of the Internal Revenue Code,
8without regard to whether or not the federal credit was limited
9by the taxpayer’s federal tax liability:
   10a.  For a taxpayer with net income of less than ten
11
 twenty-five thousand dollars, seventy-five percent.
   12b.  For a taxpayer with net income of ten twenty-five
13 thousand dollars or more but less than twenty thirty-five
14 thousand dollars, sixty-five percent.
   15c.  For a taxpayer with net income of twenty thirty-five
16 thousand dollars or more but less than twenty-five forty
17 thousand dollars, fifty-five percent.
   18d.  For a taxpayer with net income of twenty-five forty
19 thousand dollars or more but less than thirty-five fifty
20 thousand dollars, fifty percent.
   21e.  For a taxpayer with net income of thirty-five fifty
22 thousand dollars or more but less than forty sixty thousand
23dollars, forty percent.
   24f.  For a taxpayer with net income of forty sixty thousand
25dollars or more but less than forty-five sixty-five thousand
26dollars, thirty percent.
   27g.  For a taxpayer with net income of forty-five sixty-five
28 thousand dollars or more, zero percent.
29   Sec. 2.  Section 422.12C, subsection 2, paragraph a, Code
302021, is amended to read as follows:
   31a.  The taxes imposed under this subchapter, less the amounts
32of nonrefundable credits allowed under this subchapter, may
33be reduced by an early childhood development tax credit equal
34to twenty-five percent of the first one thousand dollars
35which the taxpayer has paid to others for each dependent, as
-1-1defined in the Internal Revenue Code, ages three through five
2for early childhood development expenses. In determining the
3amount of early childhood development expenses for the tax year
4beginning in the 2006 calendar year only, such expenses paid
5during November and December of the previous tax year shall
6be considered paid in the tax year for which the tax credit
7is claimed. This credit is available to a taxpayer whose net
8income is less than forty-five sixty-five thousand dollars. If
9the early childhood development tax credit is claimed for a tax
10year, the taxpayer and the taxpayer’s spouse shall not claim
11the child and dependent care credit under subsection 1.
12   Sec. 3.  Section 422.12C, Code 2021, is amended by adding the
13following new subsection:
14   NEW SUBSECTION.  5.  a.  Upon determination of the latest
15cumulative inflation factor, the director shall multiply
16each net income level set forth in subsection 1 or 2 by this
17cumulative inflation factor, shall round off the resulting
18product to the nearest one dollar, and shall incorporate the
19result into the net income levels in subsection 1 or 2 for each
20tax year beginning on or after January 1, 2021.
   21b.  For purposes of this subsection, “cumulative inflation
22factor”
means the product of the annual inflation factor for
23the 2021 calendar year and all annual inflation factors for
24subsequent calendar years as determined by section 422.4,
25subsection 1, paragraph “a”. The cumulative inflation factor
26applies to all tax years beginning on or after January 1 of
27the calendar year for which the latest annual inflation factor
28has been determined. Notwithstanding any other provision,
29the annual inflation factor for the 2021 calendar year is one
30hundred percent.
31   Sec. 4.  RETROACTIVE APPLICABILITY.  This Act applies
32retroactively to tax years beginning on or after January 1,
332021.
34EXPLANATION
35The inclusion of this explanation does not constitute agreement with
-2-1the explanation’s substance by the members of the general assembly.
   2This bill increases the Iowa net income threshold levels
3for purposes of calculating the Iowa child and dependent
4child care tax credit and the early childhood development tax
5credit available against the individual income tax. The Iowa
6child and dependent care tax credit is a refundable credit
7calculated as a percentage of the nonrefundable federal child
8and dependent care tax credit, depending on the Iowa net income
9of the taxpayer. The early childhood development tax credit
10is a refundable credit equaling 25 percent of the first $1,000
11which the taxpayer has paid to others for each dependent ages
12three through five for early childhood development expenses.
   13IOWA CHILD AND DEPENDENT CHILD CARE TAX CREDIT. Currently,
14there are seven graduated Iowa net income thresholds used to
15calculate the credit. The bill increases these graduated
16thresholds, but does not change the percentage of the
17nonrefundable federal child and dependent care tax credit
18used to calculate the Iowa child and dependent child care tax
19credit.
   20Currently, the credit percentages in these seven Iowa
21net income thresholds range from a high of 75 percent of
22the federal credit for taxpayers with net income of less
23than $10,000, to a low of 30 percent of the federal credit
24for taxpayers with net income of $40,000 or more but less
25than $45,000. Under the bill, the credit percentages in the
26thresholds range from a high of 75 percent of the federal
27credit for taxpayers with a net income of less than $25,000,
28to a low of 30 percent of the federal credit for taxpayers with
29net income of $60,000 or more but less than $65,000.
   30The bill also adjusts the future amount of each of the Iowa
31net income amounts in the seven graduated Iowa net income
32thresholds by indexing the thresholds to inflation.
   33EARLY CHILDHOOD DEVELOPMENT TAX CREDIT. The bill increases
34the income threshold determining the eligibility of a taxpayer
35for the early childhood development tax credit. The bill
-3-1increases the eligibility threshold from a taxpayer earning
2$45,000 per year to $65,000 per year. By increasing the
3eligibility threshold, taxpayers earning less than $65,000 are
4now eligible to take the early childhood development tax credit
5equaling 25 percent of the first $1,000 which the taxpayer has
6paid to others for early childhood development expenses for
7each dependent ages three through five. The bill also adjusts
8the future amount of the net income threshold by indexing the
9threshold to inflation.
   10APPLICABILITY. The bill applies retroactively to tax years
11beginning on or after January 1, 2021.
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