StateTax: Child Care Credits




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	Child Care Credits In some states, certain aspects of child care tax credit rules cannot be accurately captured with the standard program rules. In those cases, special processing can be invoked by "turning on" specific values of the state-specific program rule ChildCareCreditType. Each option is discussed in detail below. Two points are important to note. First, although these options are state-specific, they can be turned on for any state at any time. (For example, the Hawaii child care credit can be turned on for Arkansas.) Second, the options make use of other program rules that hold variables or numbers (instead of using the standard rules ChildCareCreditBrackets and ChildCareCreditRates). The program rules required to implement each option are described in the discussions below. Child care credits (either calculated through these options or by the standard methods) are saved in the micro-level variable StateChildCareCredits, and are subtracted from StateTaxWithoutCredits in computing final tax liability. Colorado Child Care Credit Hawaii Child Care Credit Louisiana Child Care Credits Minnesota Child Care Credit Nebraska Child Care Credits Refundable Non-Refundable Choosing A Credit New Jersey Child Care Credit New Mexico Child Care Credit New York Child Care Credit North Carolina Child Care Credit Oregon Child Care Credits South Carolina Child Care Credit Vermont Child Care Credits Refundable Non-Refundable Choosing A Credit Colorado Child Care Credit Beginning in 2014, Colorado modified their child care credit so that tax units with qualifying children and child care expenses who do not get a federal credit because they owe no income tax can still get a refundable state credit. If the ChildCareCreditType "Colorado" option is selected, and the unit's federal AGI is less than or equal to the lowest AGI bracket in ChildCareCreditBrackets, Colorado's Low Income Expense Credit is calculated for the tax unit. The credit is calculated as the unit's federally qualifying child care expenses times the rate in LowIncomeCCCreditRate_CO and is limited by the value in LowIncomeMaxCCCredit_CO for one qualified child or two times the value in LowIncomeMaxCCCredit_CO for 2 or more qualified children. The tax unit is eligible for the larger of the federal credit or the Low Income Expense Credit. Hawaii Child Care Credit If the option "Hawaii rules: based on federal CDCTC expenses" is selected then values must be given in the rules ChildCareCreditsMaxExpense_HI, ChildCareBrackets_HI and ChildCarePcts_HI. The bracket is calculated by comparing FedAGI to the values in ChildCareBrackets_HI. The federal child care qualifying expenses given in the rule FedChildCareQualifyingExpenses are capped at ChildCareCreditsMaxExpense_HI depending on the number of dependent children in the unit (given in NumDependentKids). The credit is equal to the capped federal credit multiplied by the rate ChildCarePcts_HI corresponding to the bracket calculated earlier. This value is then stored in the variable StateChildCareCredit. Louisiana Child Care Credits Lousiana has both a refundable and a non-refundable child care credit. A unit can take only one or the other. The credit is calculated with the regular child care credit rules using FedAGI to determine the bracket. If MaxChildCareCreditLA_HighIncome25 is set to "Yes" and the tax unit's FedAGI is in the top income bracket, then the child care credit is set to the minimum of 10 percent of the federal credit or $25. Otherwise, the credit is equal to the value of ChildCareCreditRates[State] corresponding to the bracket. If the unit is in the first bracket then the credit is refundable and added into PotentialRefChildCareCredit; otherwise it is non-refundable and added into PotentialNRChildCareCredit. This value is also stored in the variable StateChildCareCredit. Minnesota Child Care Credit Minnesota's child care credit uses a lookup table to calculate a cap for the child care credit. The table has three columns: income, one child and two or more children. The rules: ChildCareCreditIncomeBase_MN, ChildCareCreditCapOneChildBase_MN and ChildCareCreditCapTwoChildrenBase_MN give the values for the first row of the table. Additional rows are constructed by adding the increments specified in ChildCareCreditIncomeIncrement_MN, ChildCareCreditCapOneChildIncrement_MN and ChildCareCreditCapTwoChildrenIncrement_MN until the credit reaches zero. Note that since the credit goes down as income goes up, the income increment should be entered as a positive number and the credit increments should be entered as negative numbers. The income is calculated as follows. Values for both the head and spouse (if present) are added together to arrive at total unit income: FedAGI minus FedTaxableSocialSecurity plus the sum of the following program rules: AnnualSSIBen, AnnualTanfUnitBenefit, FedIRA, ReportedSocialSecurity, AnnualUnemploymentComp, VeteransIncome and EducAssistanceIncome. First calculate the number of steps a unit is away from the base income value (ie the first row of the table). If income <= ChildCareCreditIncomeBase_MN + ChildCareCreditIncomeIncrement * k then numSteps = k. Next, calculate the cap. Cap = ChildCareCreditCapOneChildBase_MN + ChildCareCreditCapOneChildIncrement_MN * numSteps, if there is only one child. Similarly, if there are two or more children then Cap = ChildCareCreditCapTwoChildrenBase_MN + ChildCareCreditCapTwoChildrenIncrement_MN * numSteps The credit is then equal to the minimum of FedChildCareCredit and the cap. New Jersey Child Care Credit New Jersey enacted a child care credit in 2018. The credit is nonrefundable, and the amount is dependent upon the number of qualifying children in care, the unit's state taxable income, and the unit's federal child care credit. For qualifying units with a positive (>0) federal child care credit, the state child care credit is a percentage of the federal credit, where the percentage is determined by comparing the unit's state taxable income StateTaxableIncome to a set of income brackets for the state (defined in program rule ChildCareBrackets). New Jersey then applies a cap to the state child care credit amount based on the number of qualifying children; these credit limits are stored in program rule MaximumCDCTC_NJ. New Mexico Child Care Credit A unit is eligible for this credit if they have any children under 15 who are in care; however, the Federal Tax module that feeds this information to State Tax only provides information about children who are 13 and under. The variable FedNumQualifyingKids is used to identify eligible units with at least one child under 13. Additionally, units are ineligible if they -- at any time in the year -- received TANF (AnnualTANFUnitBenefit > 0). In reality, receipt of TANF while claiming child care expenses in any month makes a unit ineligible. However, this cannot be modeled so we err on the conservative side, denying a credit to some families who actually take it. Some further assumptions are made in the calculation of the credit. In 2003, the actual credit is calculated child-by-child as days in care times actual daily expenses up to $8 a day times 0.4. This amount is capped at $480. Then, the amounts are added up for all the children and the total is capped at $1,200. Finally, the portion of federal child care credit applied against federal taxes is subtracted from this amount, resulting in the credit. Since we do not have expenses on a child-by-child basis, but rather on the family-level, some simplifications must be made. It is assumed that all qualifying children are in care on a full time basis. That is for 260 days (52 weeks * 5 days per week). It is also assumed that daily expenses are $8. The credit is then calculated as follows: Amt1 = minimum of 260 * 8 * number of kids and ChildCareExpense Amt2 = minimum of Amt1 times ChildCareCreditRate_NM and ChildCareCreditMaxExpensePerChild_NM times FedNumQualifyingKids Amt3 = minimum of Amt1 and ChildCareCreditMaxEligHHExpense_NM Credit = Amt3 minus the minimum of FedTaxBeforeCredits and FedChildCareCredit. New York Child Care Credit The NY child care credit is calculated from the federal child and dependent care tax credit, which is simulated by TRIM3's FederalTax module and made available to the StateTax module via program rule FedChildCareCredit. Four rules control the calculation of New York's child care credit: ChildCareCreditBrackets, ChildCareCreditRates, PhaseDownIncrement_NY, and PhaseDownRate_NY. Users provide the same number of values for each rule. The ChildCareCreditBrackets rule contains income ceilings, and the topmost income ceiling should be as large or larger than any income to which it is compared (e.g., 9,999,999). A tax unit's income bracket is determined by comparing the tax unit's state adjusted gross income with the income ceilings in ChildCareCreditBrackets. The tax unit is in the first income bracket if state AGI is less than or equal to the first ceiling; it is in the second income bracket if state AGI is less than or equal to the second income ceiling, etc. Once income bracket is determined, the rules are applied as follows, depending on whether PhaseDownIncrement_NY is set to zero or is greater than zero. PhaseDownIncrement_NY is zero: The credit is the ChildCareCreditRate associated with the tax unit's income bracket multiplied by the federal child and dependent care credit. Note: PhaseDownIncrement_NY must be set to zero for the lowest income bracket. PhaseDownIncrement_NY is greater than zero: The credit is the federal credit multiplied by the rate computed by the following formula. Rate = ChildCareCreditRates[state index][bracket index] - (state AGI - ChildCareCreditBrackets[state index][bracket index - 1]) / PhaseDownIncrement_NY[bracket index] * PhaseDownRate_NY[bracket index]. New York allows a child to be eligible for the portion of the year (s)he was under 13. The federal tax credit is based on age at the end of the year. We do not simulate part-year eligibility for children < 13. North Carolina Child Care Credit If the option "North Carolina rules: based on federal CDCTC expenses" is selected, then the rules ChildCareCreditBracketsSingle_NC, ChildCareCreditBracketsJoint_NC, ChildCareCreditBracketsHead_NC, ChildCareCreditBracketsSep_NC, ChildCareCreditRateUnder7_NC, ChildCareCreditRate7Plus_NC and ChildCareCreditMaxExpense_NC must have values. The bracket is calculated by comparing FedAGI to the appropriate bracket rule (ChildCareCreditBracketsSingle_NC, ChildCareCreditBracketsJoint_NC, ChildCareCreditBracketsHead_NC or ChildCareCreditBracketsSep_NC). A unit will use the rates given in ChildCareCreditRateUnder7_NC if there is at least one child under seven or at least one child who is under 13 and disabled. SSI receipt (AnnualSSIBen) is used as a proxy for disability. All other units use the rates given in ChildCareCreditRate7Plus_NC. The credit is equal to the minimum of the rate corresponding to the bracket times ChildCareCreditMaxExpense_NC and the value of FedChildCareQualifyingExpenses. Note that in reality, a unit could take both the federal and state child care credit with a disabled child age 13+. Since the federal tax model only identifies children 13 and under, we cannot model this here. Nebraska Child Care Credits Nebraska has both a refundable and a non-refundable credit. A unit can only take one and will take the one that results in the lower total tax liability. This decision cannot be made until after all tax credits are calculated. Refundable Calculate the bracket by comparing FedAGI with ChildCareCreditRefundableBrackets_NE. The credit is then equal to FedChildCareCredit times the corresponding rate in ChildCareCreditRefundableRates_NE. This value is added to PotentialRefChildCareCredit. Non-Refundable Calculate the bracket by comparing FedAGI with ChildCareCreditNonrefundableBrackets_NE. The credit is then equal to FedChildCareCredit times the corresponding rate in ChildCareCreditNonrefundableRates_NE. This value is added to PotentialNRChildCareCredit. Choosing A Credit After all other credits have been calculated, potential tax liability is calculated in two ways: once using the value in PotentialNRChildCareCredit and once using the value in PotentialRefChildCareCredit. The credit that results in the lowest tax liability is kept and its value is added into both StateChildCareCredit and either StateRefundableCredits or StateNRCredits. Because the credit depends on all other credits and their calculations, this child care credit cannot be combined with any EITC credit that requires a choice between a non-refundable and refundable credit. Oregon Working Family Household and Dependent Care Credit In 2016 Oregon eliminated their Working Families and Dependent Care Credit and created the Oregon Working Family Household and Dependent Care Credit. To qualify, the head or spouse of the tax unit must have earnings, and there must be at least one child who qualifies for the federal Child and Dependent Care Credit. Units compare the greater of state AGI and federal AGI to the Federal Poverty guidelines (specified by the rules in the group Poverty Guidelines) to determine their credit rate bracket (the rule WFHDCPovBrackets_OR in the group OR WFHDC). The applicable rate is then determined based on their bracket and the age of their youngest child (see the rules WFHDCRatesUnder3_OR, WFHDCRatesUnder6_OR and WFHDCRatesUnder13_OR, also in the group OR WFHDC). The final credit equals the tax unit's child care expenses multiplied by the applicable rate. The allowable amount of child care expenses that can be applied to the credit is limited to the lesser of the earnings of the head and the amount in the rule ChildCareCreditMaxExpense_OR. Note that if there is a spouse, then technically the allowable expenses can not exceed the earnings of the spouse (with a provision that treats a married couple as if the spouse had some earnings in cases when the spouse is a FT student or disabled). However, in TRIM3 we simplify this so the allowable expenses are capped at the spouses earnings only if this is a joint return and the spouse is not a student. This is making a simplifying assumption that the allowance for “shadow” earnings when there is a student spouse would be at least as high as the expenses. This same type of simplification is currently used in the Federal Tax simulation as well. Click here for more information on the child care credits eliminated in 2016. South Carolina Child Care Credit A unit is eligible for this credit if FedChildCareQualifyingExpenses is greater than zero. The credit is simply the percentage given in ChildCareCreditPct_SC times FedChldCareQualifyingExpenses. Vermont Child Care Credits Vermont has both a refundable and a non-refundable credit. A unit can only take one and will take the one that results in the lower total tax liability. This decision cannot be made until after all tax credits are calculated. Refundable Units are eligible for this credit if FedChildCareCredit is greater than zero. To calculate the credit, first calculate the bracket by comparing FedAGI with either ChildCareCreditFedAGIThresholdSingle_VT or ChildCareCreditFedAGIThresholdJoint_VT. Units with StateFilingStatus equal to joint use the joint brackets, all other units use the single brackets. The credit is then equal to the corresponding rate in ChildCareCreditRefundableRate_VT times FedChildCareCredit. This value is then stored in PotentialRefChildCareCredit. Non-Refundable Units are eligible for this credit if FedChildCareCredit is greater than zero. The credit is equal to ChildCareCreditNRRate_VT times FedChildCareCredit. Choosing A Credit After all other credits have been calculated, potential tax liability is calculated in two ways: once using the value in PotentialNRChildCareCredit and once using the value in PotentialRefChildCareCredit. The credit that results in the lowest tax liability is kept and its value is added into both StateChildCareCredit and either StateRefundableCredits or StateNRCredits. Because the credit depends on all other credits and their calculations, this child care credit cannot be combined with any EITC credit that requires a choice between a non-refundable and refundable credit.
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