Legislation proposes overhaul of Minnesota's child care tax credit

Child care for the youngest children is usually the most expensive.

Expanding the dependent care credit would assist with those child care expenses.

“We have decided to target the youngest Minnesotans, particularly to just help with child care costs,” said Rep. Carlie Kotyza-Witthuhn (DFL-Eden Prairie), who sponsors HF1384.

The House Children and Families Finance and Policy Committee approved the bill Tuesday and referred it to the House Taxes Committee.

Besides increasing the maximum credit rate to 50% and raising the maximum amount of expenses eligible for the credit to $10,000, $20,000, or $25,000, for taxpayers with one, two, or three children younger than age 5, the bill is also income adjusted.

The bill would establish a two-tier phaseout of the credit, with the first tier beginning at $125,000 of adjusted gross income and the second tier beginning at $400,000.

The result, Kotyza-Witthuhn said, is more families in Minnesota would benefit.

“Middle class families have gotten just about nothing in terms of help,” said Clare Sanford, government relations chair for the Minnesota Child Care Association. “We can't keep looking at helping families with child care expenses as only something we do for low-income families.”

Although there isn’t a current fiscal note, Kotyza-Witthuhn acknowledged that it's a costly proposal but there's a lot of families with children who need that support.

The bill would allow taxpayers who participate in a dependent care assistance program to claim the credit, but it would require an addition for dependent care contributions that were excluded from adjusted gross income.

Currently, the state credit is equal to the amount allowed under federal law, which would decouple Minnesota from the federal credit calculation.