Iowa Administrative Code › Agency 701 - Revenue Department › Title IV - Individual Income Tax › Chapter 304 - Adjustments to Computed Tax and Tax Credits › Rule 701-304.15 - Child and Dependent Care Credit

Current through Register Vol. 47, No. 3, July 24, 2024
There is a child and dependent care credit which is
				  refundable to the extent the amount of the credit exceeds the taxpayer's income
				  tax liability less other applicable income tax credits. If a taxpayer claims
				  the child and dependent care credit, the taxpayer cannot claim the early
				  childhood development credit described in rule
				  701-42.31 (422).
(1)
Computation of the Iowa child and
				dependent care credit.
The Iowa child and dependent care credit is
				computed as a percentage of the child and dependent care credit which is
				allowed for federal income tax purposes under Section 21 of the Internal
				Revenue Code. For tax years beginning on or after January 1, 2015, the Iowa
				credit is computed without regard to whether or not the federal credit was
				limited to the taxpayer's federal tax liability. In addition, for tax years
				beginning on or after January 1, 2015, the Iowa credit will be allowed even if
				the taxpayer's federal adjusted gross income is below $0. The credit is
				computed so that taxpayers with lower net incomes are allowed higher
				percentages of their federal child care credit than taxpayers with higher net
				incomes. The following is a schedule showing the percentages of federal child
				and dependent care credits allowed on the taxpayers' Iowa returns on the basis
				of the net incomes of the taxpayers.
* Net income
Percentage of federal credit allowed for tax years
							 beginning on or after January 1, 2006, and before January 1, 2021
Percentage of federal credit allowed for tax years
							 beginning on or after January 1, 2021
Less than $10,000
75%
75%
$10,000 or more but less than $20,000
65%
65%
$20,000 or more but less than $25,000
55%
55%
$25,000 or more but less than $35,000
50%
50%
$35,000 or more but less than $40,000
40%
40%
$40,000 or more but less than $45,000
30%
30%
$45,000 or more but less than $90,000
No Credit
30%
$90,000 or more
No Credit
No Credit
*Note that in the case of married taxpayers who have filed
				  joint federal returns and elect to file separate returns or to file separately
				  on the combined return form for Iowa purposes, the taxpayers must determine the
				  child and dependent care credit by the schedule provided in this rule on the
				  basis of their combined net incomes. The credit determined from the schedule
				  must be allocated between the married taxpayers in the proportion that each
				  spouse's net income relates to the combined net income of the taxpayers.
(2)
Examples of
				computation of the Iowa child and dependent care credit.
The following
				are examples of computation of the child and dependent care credit and the
				allocation of the credit between spouses in situations where married taxpayers
				have filed joint federal returns and are filing separate Iowa returns or are
				filing separately on the combined Iowa return form.
EXAMPLE A: A married couple has a combined net income of
				  $40,000. Both spouses were employed. They had a federal child and dependent
				  care credit of $600 which related to expenses incurred for care of their two
				  small children. One of the spouses had a net income of $30,000 and the second
				  spouse had a net income of $10,000.
The taxpayers' Iowa child and dependent care credit was $180
				  since they were entitled to an Iowa child and dependent care credit of 30
				  percent of their federal credit of $600. If the taxpayers elect to file
				  separate Iowa returns, the $180 credit would be allocated between the spouses
				  on the basis of each spouse's net income as it relates to the combined net
				  income of both spouses as shown below:
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EXAMPLE B: A married couple filed their Iowa return
				  separately on a combined return. Both spouses were employed. They had a federal
				  child and dependent care credit of $800 which related to expenses incurred for
				  care of their children. One spouse had a net income of $25,000 and the other
				  spouse had a net income of $12,500, so their combined net income was
				  $37,500.
The taxpayers' Iowa child and dependent care credit was $320,
				  since they were entitled to an Iowa credit of 40 percent of their federal
				  credit of $800. The $320 credit is allocated between the spouses on the basis
				  of each spouse's Iowa net income as it relates to the combined Iowa net income
				  of both spouses as shown below:
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(3)
Computation of the Iowa child and
				dependent care credit for nonresidents and part-year residents.
Nonresidents and part-year residents who have income from Iowa sources in the
				tax year may claim child and dependent care credits on their Iowa returns. The
				percentage of the federal credit allowed is determined based on the nonresident
				or part-year resident's all-source net income. If the nonresident or part-year
				resident's all-source net income is $90,000 or higher, the taxpayer will not
				qualify for the Iowa child and dependent care credit regardless of the amount
				of the taxpayer's Iowa-source income. To compute the amount of child and
				dependent care credit that can be claimed on the Iowa return by a nonresident
				or part-year resident, the following formula shall be used:
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*Iowa net income for purposes of determining the child care
				  credit that can be claimed on the Iowa return by a nonresident or part-year
				  resident taxpayer is the total Iowa-source income less the Iowa-source
				  adjustments to income as computed on the Schedule IA 126.
In cases where married taxpayers are nonresidents or
				  part-year residents of Iowa and are filing separate Iowa returns or are filing
				  separately on the combined Iowa return form, the child and dependent care
				  credit allowable on the Iowa return should be allocated between the spouses in
				  the ratio of the Iowa net income of each spouse to the combined Iowa net income
				  of the taxpayers.
(4)
Example of computation of the Iowa child and dependent care credit for
				nonresidents and part-year residents.
The following is an example of
				the computation of the Iowa child and dependent care credit for nonresidents
				and part-year residents.
A married couple lives in Omaha, Nebraska. One of the spouses
				  worked in Iowa and had an Iowa-source net income of $15,000. That spouse had an
				  all-source net income of $20,000. The second spouse had an Iowa-source net
				  income of $10,000 and an all-source net income of $15,000. The couple had a
				  combined Iowa-source net income of $25,000 and a combined all-source net income
				  of $35,000. The taxpayers had a federal child and dependent care credit of $800
				  which related to expenses incurred for the care of their two young children.
				  The taxpayers' Iowa child and dependent care credit is calculated below:
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The $229 credit is allocated between the spouses as shown
				  below:
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This rule is intended to implement Iowa Code section
				  422.12C.