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Senate File 460 - IntroducedA Bill ForAn Act 1relating to the child and dependent and early childhood
2development tax credits, and including retroactive
3applicability provisions.
4BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA:
1 Section 1. Section 422.12C, subsection 1, Code 2023, is
2amended by striking the subsection and inserting in lieu
3thereof the following:
41. The taxes imposed under this subchapter, less the amounts
5of nonrefundable credits allowed under this subchapter, shall
6be reduced by a child and dependent care credit equal to the
7following percentages of the federal child and dependent care
8credit provided in section 21 of the Internal Revenue Code,
9without regard to whether or not the federal credit was limited
10by the taxpayer’s federal tax liability:
11a. For a taxpayer of net income of less than twenty-five
12thousand dollars, one hundred percent.
13b. For a taxpayer with net income of twenty-five thousand
14dollars or more but less than forty thousand dollars, ninety
15percent.
16c. For a taxpayer with net income of forty thousand dollars
17or more but less than sixty thousand dollars, seventy-five
18percent.
19d. For a taxpayer with net income of sixty thousand dollars
20or more but less than ninety thousand dollars, fifty percent.
21e. For a taxpayer with net income of ninety thousand dollars
22or more, zero percent.
23 Sec. 2. Section 422.12C, Code 2023, is amended by adding the
24following new subsection:
25 NEW SUBSECTION. 5. a. Upon determination of the latest
26cumulative inflation factor, the director shall multiply
27each net income level set forth in subsection 1 or 2 by the
28cumulative inflation factor, shall round off the resulting
29product to the nearest one dollar, and shall incorporate the
30result into the net income levels in subsection 1 or 2 for each
31tax year beginning on or after January 1, 2023.
32b. For purposes of this subsection, “cumulative inflation
33factor” means the product of the annual inflation factor for
34the 2024 calendar year and all annual inflation factors for
35subsequent calendar years as determined by section 422.4,
-1-1subsection 1, paragraph “a”. The cumulative inflation factor
2applies to all tax years beginning on or after January 1 of
3the calendar year for which the latest annual inflation factor
4has been determined. Notwithstanding any other provision,
5the annual inflation factor for the 2023 calendar year is one
6hundred percent.
7 Sec. 3. RETROACTIVE APPLICABILITY. This Act applies
8retroactively to January 1, 2023, for tax years beginning on
9or after that date.
10EXPLANATION
11The inclusion of this explanation does not constitute agreement with
12the explanation’s substance by the members of the general assembly.
13This bill relates to the Iowa child and dependent care tax
14credit and the early childhood development tax credit available
15against the individual income tax.
16IOWA CHILD AND DEPENDENT CARE TAX CREDIT. The Iowa child
17and dependent care tax credit is a refundable credit calculated
18as a percentage of the federal child and dependent care tax
19credit, depending on the Iowa net income of the taxpayer.
20Currently, there are seven graduated Iowa net income thresholds
21used to calculate the credit. The bill reduces the number
22of Iowa net income thresholds from seven thresholds to five
23thresholds, but increases the Iowa child and dependent care tax
24credit by increasing the allowable percentage of the federal
25child and dependent care tax credit that may be used by the
26taxpayer to calculate the Iowa child and dependent care tax
27credit.
28Currently, the credit percentages in these seven Iowa
29net income thresholds range from a high of 75 percent of
30the federal credit for taxpayers with net income of less
31than $10,000, to a low of 30 percent of the federal credit
32for taxpayers with net income of $40,000 or more but less
33than $90,000. Under the bill, the credit percentages in the
34thresholds range from a high of 100 percent of the federal
35credit for taxpayers with a net income of less than $25,000,
-2-1to a low of 50 percent of the federal credit for taxpayers with
2net income of $60,000 or more but less than $90,000.
3The bill also adjusts the future amount of each of the
4Iowa net income amounts in the five graduated Iowa net income
5thresholds by indexing the thresholds to inflation.
6EARLY CHILDHOOD DEVELOPMENT TAX CREDIT. The early childhood
7development tax credit is a refundable credit equaling 25
8percent of the first $1,000 which the taxpayer has paid to
9others for each dependent ages three through five for early
10childhood development expenses, if the taxpayer’s income is
11less than $90,000. The bill adjusts the future amount of the
12$90,000 Iowa net income threshold by indexing the threshold to
13inflation.
14APPLICABILITY. The bill applies retroactively to tax years
15beginning on or after January 1, 2023.
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2development tax credits, and including retroactive
3applicability provisions.
4BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA:
1 Section 1. Section 422.12C, subsection 1, Code 2023, is
2amended by striking the subsection and inserting in lieu
3thereof the following:
41. The taxes imposed under this subchapter, less the amounts
5of nonrefundable credits allowed under this subchapter, shall
6be reduced by a child and dependent care credit equal to the
7following percentages of the federal child and dependent care
8credit provided in section 21 of the Internal Revenue Code,
9without regard to whether or not the federal credit was limited
10by the taxpayer’s federal tax liability:
11a. For a taxpayer of net income of less than twenty-five
12thousand dollars, one hundred percent.
13b. For a taxpayer with net income of twenty-five thousand
14dollars or more but less than forty thousand dollars, ninety
15percent.
16c. For a taxpayer with net income of forty thousand dollars
17or more but less than sixty thousand dollars, seventy-five
18percent.
19d. For a taxpayer with net income of sixty thousand dollars
20or more but less than ninety thousand dollars, fifty percent.
21e. For a taxpayer with net income of ninety thousand dollars
22or more, zero percent.
23 Sec. 2. Section 422.12C, Code 2023, is amended by adding the
24following new subsection:
25 NEW SUBSECTION. 5. a. Upon determination of the latest
26cumulative inflation factor, the director shall multiply
27each net income level set forth in subsection 1 or 2 by the
28cumulative inflation factor, shall round off the resulting
29product to the nearest one dollar, and shall incorporate the
30result into the net income levels in subsection 1 or 2 for each
31tax year beginning on or after January 1, 2023.
32b. For purposes of this subsection, “cumulative inflation
33factor” means the product of the annual inflation factor for
34the 2024 calendar year and all annual inflation factors for
35subsequent calendar years as determined by section 422.4,
-1-1subsection 1, paragraph “a”. The cumulative inflation factor
2applies to all tax years beginning on or after January 1 of
3the calendar year for which the latest annual inflation factor
4has been determined. Notwithstanding any other provision,
5the annual inflation factor for the 2023 calendar year is one
6hundred percent.
7 Sec. 3. RETROACTIVE APPLICABILITY. This Act applies
8retroactively to January 1, 2023, for tax years beginning on
9or after that date.
10EXPLANATION
11The inclusion of this explanation does not constitute agreement with
12the explanation’s substance by the members of the general assembly.
13This bill relates to the Iowa child and dependent care tax
14credit and the early childhood development tax credit available
15against the individual income tax.
16IOWA CHILD AND DEPENDENT CARE TAX CREDIT. The Iowa child
17and dependent care tax credit is a refundable credit calculated
18as a percentage of the federal child and dependent care tax
19credit, depending on the Iowa net income of the taxpayer.
20Currently, there are seven graduated Iowa net income thresholds
21used to calculate the credit. The bill reduces the number
22of Iowa net income thresholds from seven thresholds to five
23thresholds, but increases the Iowa child and dependent care tax
24credit by increasing the allowable percentage of the federal
25child and dependent care tax credit that may be used by the
26taxpayer to calculate the Iowa child and dependent care tax
27credit.
28Currently, the credit percentages in these seven Iowa
29net income thresholds range from a high of 75 percent of
30the federal credit for taxpayers with net income of less
31than $10,000, to a low of 30 percent of the federal credit
32for taxpayers with net income of $40,000 or more but less
33than $90,000. Under the bill, the credit percentages in the
34thresholds range from a high of 100 percent of the federal
35credit for taxpayers with a net income of less than $25,000,
-2-1to a low of 50 percent of the federal credit for taxpayers with
2net income of $60,000 or more but less than $90,000.
3The bill also adjusts the future amount of each of the
4Iowa net income amounts in the five graduated Iowa net income
5thresholds by indexing the thresholds to inflation.
6EARLY CHILDHOOD DEVELOPMENT TAX CREDIT. The early childhood
7development tax credit is a refundable credit equaling 25
8percent of the first $1,000 which the taxpayer has paid to
9others for each dependent ages three through five for early
10childhood development expenses, if the taxpayer’s income is
11less than $90,000. The bill adjusts the future amount of the
12$90,000 Iowa net income threshold by indexing the threshold to
13inflation.
14APPLICABILITY. The bill applies retroactively to tax years
15beginning on or after January 1, 2023.
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