Proposed 'Great Start Child Care Credit' could put money back in parents’ pockets

Those returning to the workforce after the arrival of a new baby can get some sticker shock when they try to find child care. But Minnesota’s tax code could make life a little easier.

Under HF9, sponsored by Rep. Carlie Kotyza-Witthuhn (DFL-Eden Prairie), the state’s current dependent care credit would expand for parents of children younger than 5. They would become eligible for a tax credit of up to $10,000 worth of qualifying child care expenses for each of their first two children and $5,000 if they have a third child of that age.

Replaced by a delete-all amendment, the bill was laid over by the House Taxes Committee on Tuesday for possible omnibus bill inclusion.

“We’ve known for a while that our child care system is broken,” Kotyza-Witthuhn said. “There are families throughout Minnesota that pay as much – or twice as much – as their mortgage payment in child care. In addition, we face a critical workforce shortage. We saw more parents, especially women, leave the workforce in order to care for children or help educate their children during the pandemic.

“What we’re calling the ‘Great Start Child Care Tax Credit’ says to young families: You’re welcome in Minnesota.”

In decoupling the state’s dependent care credit from the federal credit, the bill would increase the maximum credit rate to 50% and create two tiers for the credit’s income-based phaseout, the first tier beginning at $125,000 of adjusted gross income, the second at $400,000.

And, if you already participate in a dependent care assistance program through your employer, you’d still be able to claim the credit, albeit with an addition for contributions to an account that were excluded from your adjusted gross income.

Rep. Carlie Kotyza-Witthuhn

While praising the bill, the committee’s chair, Rep. Aisha Gomez (DFL-Mpls), and Rep. Dave Pinto (DFL-St. Paul) both said it won’t solve the challenges of how child care is handled in the state.

“You have to be pretty wealthy before you are not slammed by child care costs,” Pinto said. “But this piece, while only a piece, is a tool that we have available to us.”

“In the U.S., the average investment in early childhood across the states is $500 a year,” Gomez said. “Across the rest of the developed world, it’s more like $12,000 or $13,000. So about 25 times what we pay. … But we can’t tax-credit our way out of being extreme outliers in the developed world in the way we choose to invest in our families and our babies.”

The Department of Revenue estimates the changes, effective in tax year 2023, would reduce the General Fund by $217.1 million in fiscal year 2024. It estimates that about 174,400 taxpayers would be affected in tax year 2023, with an average decrease in tax of $1,245.