Iowa Administrative Code › Agency 701 - Revenue Department › Title IV - Individual Income Tax › Chapter 304 - Adjustments to Computed Tax and Tax Credits › Rule 701-304.31 - Early Childhood Development Tax Credit

Current through Register Vol. 47, No. 3, July 24, 2024
Taxpayers may claim a tax credit equal to 25 percent of the
				  first $1,000 of expenses paid to others for early childhood development for
				  each dependent three to five years of age. The credit is available only to
				  taxpayers whose net income is less than $90,000. If a taxpayer claims the early
				  childhood development tax credit, the taxpayer cannot claim the child and
				  dependent care credit described in rule
				  701-42.15 (422). The early
				  childhood development tax credit is refundable to the extent that the credit
				  exceeds the taxpayer's income tax liability.
For married taxpayers who elect to file separately on a
				  combined form or elect to file separate returns for Iowa tax purposes, the
				  combined net income of the taxpayers must be less than $90,000 to be eligible
				  for the credit. If the combined net income is less than $90,000, the early
				  childhood development tax credit shall be prorated to each spouse in the
				  proportion that each spouse's respective net income bears to the total combined
				  net income.
Nonresidents and part-year residents who have income from
				  Iowa sources in the tax year may claim the early childhood development tax
				  credit on their Iowa returns. If the taxpayer's all-source net income is
				  $90,000 or higher, the taxpayer will not qualify for the credit. Nonresidents
				  or part-year residents of Iowa must determine the early childhood development
				  tax credit in the ratio of their Iowa-source net income to their all-source net
				  income. In addition, if nonresidents or part-year residents of Iowa are married
				  and elect to file separate returns or to file separately on a combined Iowa
				  return, the early childhood development tax credit must be allocated between
				  the spouses in the ratio of each spouse's Iowa-source net income to their
				  combined Iowa-source net income.
(1)
Expenses eligible for the credit.
The following expenses
				qualify for the early childhood development tax credit, to the extent they are
				paid during the time period that a dependent is either three, four, or five
				years of age:
a. Expenses for services
				provided by a preschool, as defined in Iowa Code section
				237A.1. The preschool may only
				provide services for periods of time not exceeding three hours per
				day.
b. Books that improve child
				development, including textbooks, music books, art books, teacher editions, and
				reading books.
c. Expenses paid for
				instructional materials required to be used in a child development or
				educational lesson activity. These materials include, but are not limited to,
				paper, notebooks, pencils, and art supplies. In addition, software and toys
				which are directly and primarily used for educational or learning purposes are
				considered instructional materials.
d. Expenses paid for lesson plans and
				curricula.
e. Expenses paid for
				child development and educational activities outside the home. These activities
				include, but are not limited to, drama, art, music, and museum activities,
				including the entrance fees for such activities.