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CCLP testifies in support of Child Care Tax Credit changes
On Monday, February 26, 2024, Chaer Robert, CCLP’s Emeritus Advisor, provided testimony to the House Finance Committee in support of House Bill 24-1134, Adjustments to Tax Expenditures to Reduce Burden. CCLP is in support of HB24-1134.
Background: House Bill 24-1134, Adjustments to Tax Expenditures to Reduce Burden, by Representatives Mike Weissman and Manny Rutinel and Senator Nick Hinrichsen would increase the state Earned Income Tax Credit (EITC) to 50% of the federal EITC on an ongoing basis. It would also merge the Colorado Child Care Tax Credit and the Colorado Low-Income Child Care Tax Credit into one and increase the credit for all families earning below $60,000 adjusted gross income to equal 70% of the Federal Child and Dependent Care. The maximum possible credit for a tax filer is $735 for one child or another qualified dependent, and $1470 for two or more. It would align with the federal credit in adding dependent care for other dependent relatives who cannot care for themselves. The bill includes a partial pay for changing how Colorado calculates taxes for multi-state corporations to align with the practices of other states. If the bill passes in its current form, it will result in an over $200 million per year paid to low- and moderate-income families to defray child and other qualified dependent care costs. Below is Chaer Robert’s testimony in support of HB24-1134.
Thank you, Mr. Chair,
I am Chaer Robert, representing the Colorado Center on Law and Policy (CCLP). We supported our state EITC beginning with its creation 25 years ago, and we support House Bill 24-1134.
Today, however, I will focus on the state Child Care Tax Credits.
Colorado created a Child Care Tax Credit in 1996 with House Bill 1121 for those who needed child care to work. It looked progressive on paper since those earning under $25,000 a year could claim 50% of the federal Child and Dependent Care Credit. Those earning between $25,000 and $35,000 could claim 30% of the federal credit, and those earning between $35,000- $60,000 could claim 10%.
However, CCLP recognized that working parents could not benefit if they earned too little to have a federal income tax liability. Since the federal credit is not refundable, they received $0 from the federal credit, and therefore, $0 for the Colorado credit.
So, in 2014 we led the effort for a child care tax credit for those earning under $25,000 with House Bill 1072. This credit is a fourth of their annual child care expenses capped at $500 for one child, or $1,000 for two or more children. Families who could claim any amount of the existing state credit, however, were ineligible for this credit. This built in a cliff effect in which the head of a household (i.e., single parent) today can receive a $500 credit for one child if they earn below $20,800, but if their income increases two dollars per month, their credit falls to $1.
The changes in Colorado Child Care Tax Credits proposed in sections 1 and 2 of this bill offer four improvements for struggling families:
- Merging the state Child Care Tax Credit and the low-income credit in 2026, and increasing the percentage for all families to 70% of the federal credit through an amendment, would increase the maximum tax credit for low-income families as well as for families who claim the regular Child Care Tax Credit. The amount of the credit represents only a tiny fraction of child care The annual cost for child care for a toddler in Colorado, for example, averages from $11,000 for home-based care to $16,000 for center-based care.
- The sunset[1] on the Low-Income Credit would be removed. The other Child Care Tax Credit does not have a sunset.
- Merging the two credits would eliminate the cliff for low-income families, preventing small income increases from causing their child care credit to plunge.
- Low-income families are more likely to live in multi-generational households. Including other dependents – like the federal Child and Dependent Care Credit does – could help many individuals remain employed by defraying some cost of care for a dependent spouse or other qualifying relative. Eligibility is tightly defined by the IRS to include situations in which the dependent is living in the same home and is unable to care for themselves.
We ask for your support for House Bill 24-1134.
Sincerely,
Chaer Robert
Emeritus Advisor
Colorado Center on Law and Policy
Update 5/7/2024: HB24-1134 passed its 2nd reading on the Senate Floor with amendments.
[1] https://coprrr.colorado.gov/how-reviews-work/sunset-reviews#:~:text=The%20Colorado%20General%20Assembly%20sets,if%20it%20is%20not%20reauthorized.