Incentives Watch: How Does State Tax Law Help Families with Children?


The average cost of raising a child in the U.S. is over $230,000, according to the U.S. Department of Agriculture, which has been tracking these costs since 1960. And that does not include the costs for a college education. Of course, where you live leads to variations in spending trends; families in urbans areas tend to spend more than those in rural areas. Many parents around the country are able to take the federal Child Tax Credit to reduce their tax liabilities. Some families are also eligible for the federal Child and Dependent Care Tax Credit. In addition, states offer a variety of credits for parents, including child tax credits, earned income tax credits, and child and dependent care credits. There are also state credits that help families with education costs for their children. So, what are some of these credits that states offer to parents?

California: Child and Dependent Care Expenses Credit

California offers a credit for expenses of child care and dependent care provided in-state that is necessary for the taxpayer’s gainful employment. The credit is equal to a percentage of the allowable federal credit and is claimed on California Form FTB 3506: Child and Dependent Care Expenses Credit.

Colorado: Child Care Tax Credit

Colorado residents who claim a child care credit on their federal tax return can also claim a Colorado child tax credit. Residents who are receiving child care assistance from the state Department of Human Services can only take the credit for unreimbursed out-of-pocket expenses that result in a federal credit for child care expenses.

The credit is equal to a percentage of the federal tax credit allowed for children under the age of 13. The percentages are as follows:

  • 50 percent of the federal tax credit for taxpayers whose federal adjusted gross income is $25,000 or less;

  • 30 percent of the federal tax credit for taxpayers whose federal adjusted gross income is between $25,001 and $35,000;

  • 10 percent of the federal credit for taxpayers whose federal adjusted gross income is between $35,001 and $60,000; and

  • 0 percent of the federal credit for taxpayers whose federal adjusted gross income exceeds $60,000.

The credit is refundable. To claim the credit, taxpayers must attach a completed Form DR 0347 to the taxpayer's tax return to claim this credit.

Louisiana: Child Care Expense Credit

Louisiana offers resident taxpayers a credit for child care expenses paid during the tax year. The credit is calculated using percentages if the resident individual's federal adjusted gross income is equal to or less than $25,000, the credit will be calculated based on the federal tax credit before it is reduced by the amount of the individual's federal income tax and be equal to the following amounts:

  1. 50 percent of the unreduced federal credit for tax years beginning after Dec. 31, 2006;

  2. if the resident individual's federal adjusted gross income is greater than $25,000 and less than or equal to $35,000, the credit is equal to 30 percent of the federal credit for child care expenses claimed on the resident individual's federal tax return;

  3. if the resident individual's federal adjusted gross income is greater than $35,000 and less than or equal to $60,000, the credit is equal to 10 percent of the federal credit for child care expenses claimed on the individual's federal tax return; and

  4. if the individual's income is greater than $60,000, the credit is equal to the lesser of $25 or 10 percent of the federal credit for child care expenses claimed on the individual's federal tax return.

The credit is refundable for individuals whose federal adjusted gross income is equal to or less than $25,000. If the individual's federal adjusted gross income is greater than $25,000 then the credit is nonrefundable, but unused credits may be carried forward for five years.

Taxpayers must attach the Louisiana Refundable Child Care Credit Worksheet to the taxpayer's Louisiana income tax return.

Louisiana: School Readiness Credit - Child Care Expenses

Louisiana also offers a credit to taxpayers with children under the age of six who are enrolled in a qualified child care center that has earned at least two stars in the Quality Start program. A qualified child care center is a licensed child care center that participates in the Quality Start program.

The credit amount is an increase to the standard child care tax credit and is based on the number of stars the child care center has earned in the Quality Start program. The credit increases the standard child state care tax credit by:

  • 50 percent for two star child care centers;

  • 100 percent for three star child care centers;

  • 150 percent for four star child care centers; and

  • 200 percent for five star child care centers.

No credit is available for child care centers that have less than a two star rating.

Parents with multiple children must calculate the credit separately for each child. If a child attends multiple child care centers throughout the year, then the center with the highest rating is used to determine the star rating and credit amount.

The credit is refundable for taxpayers whose federal adjusted gross income is equal to or less than $25,000, and the credit may be carried forward for taxpayers whose federal adjusted gross income is greater than $25,000.

To claim the credit, taxpayers must obtain a certificate from the child care center no later than Jan. 31 of the succeeding year. Taxpayers must submit or maintain the certificate as required by the Department of Revenue. The credit is related to and based on both the state and federal child care expense tax credit.

New York: Empire State Child Credit

Taxpayers who have a child who is at least four years old at the end of the year, and who qualify for the federal child tax credit, may be eligible for the Empire State Child Credit. Taxpayers must complete New York Form IT-213: Claim for Empire State Child Credit and attach it to their New York income tax return.

If a taxpayer claimed the federal child tax credit, this credit is equal to the greater of either 33 percent of the federal child tax credit and federal additional child credit, and $100 multiplied by the number of qualifying children. If the taxpayer did not claim the federal child tax credit but meets all other eligibility requirements the amount of the Empire State child credit is $100 multiplied by the number of qualifying children.

A taxpayer may claim a refund of any Empire State child credit that is in excess of their New York tax liability.

Continue the discussion on Bloomberg BNA’s State Tax Group on LinkedIn: What other child care credits are available in your state?

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