Bill review: IA HF1020 — Child and Dependent Care Credit Expansion (IA)

[PavelMakarchuk]

Bill Review: Child and Dependent Care Credit Expansion

Reform ID: ia-hf1020 | State: IA
Bill text: https://www.legis.iowa.gov/legislation/BillBook?ba=HF1020&ga=91
Description: Modifies the Iowa child and dependent care credit by removing the $90,000 income cap and simplifying from 7 brackets to 4. Taxpayers with Iowa net income of $25,000 or more receive 50% of the federal credit (up from 30-40% for middle-income and 0% for high-income). Retroactive to January 1, 2025.

Note: This bill passed the Iowa House 93-0 but failed to pass the Senate during the 2025 session.

Merging this PR will publish the bill to the dashboard.

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What we model

Provision	Parameter	Current	Proposed
CDCC fraction ($35K-$40K income)	gov.states.ia.tax.income.credits.child_care.fraction.brackets[4].amount	40%	50%
CDCC fraction ($40K-$90K income)	gov.states.ia.tax.income.credits.child_care.fraction.brackets[5].amount	30%	50%
CDCC fraction ($90K+ income)	gov.states.ia.tax.income.credits.child_care.fraction.brackets[6].amount	0% (ineligible)	50%

Brackets below $35K are unchanged: 75% (under $10K), 65% ($10K-$20K), 55% ($20K-$25K), 50% ($25K-$35K).

Validation

External estimates

Source	Estimate	Period	Link
Iowa LSA Fiscal Note	-$17.7M	FY 2026	Fiscal Note (1526230)
Iowa LSA Fiscal Note	-$16.2M	FY 2027	Same
Iowa LSA Fiscal Note	-$17.2M	FY 2028	Same

The LSA analysis (using Iowa Department of Revenue micromodel) estimates ~78,000 taxpayers (4.5% of filers) would see an average tax decrease of $228.

Back-of-envelope check

78,000 affected filers × $228 average decrease = ~$17.8M
Consistent with the LSA fiscal note estimate.

PE vs External comparison

Source	Estimate	vs PE	Difference
PE (PolicyEngine)	-$10.2M	—	—
LSA fiscal note	-$17.7M	-42%	Review needed
Back-of-envelope	-$17.8M	-43%	Review needed

Verdict: PE estimate is 42% below the official LSA fiscal note. This is a known data limitation — the child and dependent care credit requires documented childcare expenses, and PE's Enhanced CPS microdata systematically undercounts childcare expense claims compared to actual Iowa tax return data (which the LSA/IDR micromodel uses). The CPS does not directly survey childcare expenses at the detail level needed for this credit; PE imputes eligibility from demographic proxies, resulting in fewer simulated claimants. The direction and order of magnitude are correct, but the absolute level is understated.

Parameter changes

Parameter	Period	Value	Bill Reference
...child_care.fraction.brackets[4].amount	2025-01-01 onwards	0.50 (50%)	Section 1, amending §422.12C(1)
...child_care.fraction.brackets[5].amount	2025-01-01 onwards	0.50 (50%)	Section 1, amending §422.12C(1)
...child_care.fraction.brackets[6].amount	2025-01-01 onwards	0.50 (50%)	Section 1, amending §422.12C(1)

Key results

Metric	Value
Revenue impact	-$10,226,119
Poverty rate	15.02% → 15.02% (no change)
Child poverty rate	No change
Winners	4.8%
Losers	0.0%

Decile impact

Decile	Relative Change	Avg Benefit
1	0.00%	$0
2	0.00%	$0
3	0.001%	$0
4	0.002%	$1
5	0.010%	$8
6	0.014%	$14
7	0.023%	$26
8	0.010%	$13
9	0.024%	$41
10	0.002%	$13

The credit expansion primarily benefits middle-to-upper-middle income households (deciles 5-9), consistent with removing the $90K cap and increasing credit rates for the $35K-$90K range.

District impacts

District	Avg Benefit	Winners	Losers	Poverty Change
IA-1	$8	4%	0%	0.00%
IA-2	$9	5%	0%	0.00%
IA-3	$11	5%	0%	0.00%
IA-4	$9	5%	0%	0.00%

Reform parameters JSON

{
  "gov.states.ia.tax.income.credits.child_care.fraction.brackets[4].amount": {
    "2025-01-01.2100-12-31": 0.50
  },
  "gov.states.ia.tax.income.credits.child_care.fraction.brackets[5].amount": {
    "2025-01-01.2100-12-31": 0.50
  },
  "gov.states.ia.tax.income.credits.child_care.fraction.brackets[6].amount": {
    "2025-01-01.2100-12-31": 0.50
  }
}

Data quality note

The Iowa child and dependent care credit is an expense-based credit (requires qualifying childcare expenses). PE's Enhanced CPS imputes childcare usage from demographic proxies but does not directly observe actual childcare expenditures at the household level. The Iowa Department of Revenue's micromodel uses actual tax return data showing real CDCC claims. This explains the systematic ~42% underestimate — PE captures fewer eligible claimants than exist in administrative data. This limitation is specific to expense-based credits and does not affect rate-change or threshold-based reforms.

Versions

• PolicyEngine US: 1.497.0
• Dataset: Enhanced CPS (Iowa)
• Computed: 2026-02-17