Authorizes cities having a population of one million or more, which impose a personal income tax, to grant a household and dependent care services credit when necessary for gainful employment

Summary of provisions

This bill would amend Section 1310 of the tax law by adding a new subsection (g) to create a credit for certain household and dependent care services for gainful employment. Paragraph l of new subsection (g) would allow, beginning January 1, 2013, New York City to create, by local law, a credit against the City's personal income tax. New York City's credit would be limited to qualifying individuals who also claimed the State's credit for certain household and dependent care services necessary for gainful employment with respect to children who have not yet reached the age of 4.

The credit would be equal to the applicable percentage of the Federal credit for expenses for household and dependent care services necessary for gainful employment. The applicable percentage of the Federal Credit would be as follows:

(A) For incomes $45,000 or less, the credit is 90%. (B) For incomes between $45,001 and $60,000, the credit phases down from 90% to 50%. (C) For incomes between $60,001 and $150,000, the credit is 50%. (D) For incomes between S150,001 and $175,000, the credit phases down from 50% to zero. (E) For incomes of $175,001 or more, the credit is zero.

Paragraph 2 of new subsection (g) provides that such credit is refundable, and shall be applied after all other credits against the City personal income tax have been taken. For part year residents, the credit will be prorated based on the length of time the taxpayer was a resident of New York City.

Paragraph 3 of new subsection (g) provides that for married couples who filed a joint federal return, but are required to file their City taxes separately, then the credit shall be imposed on the spouse with the lower income. If the spouse with the lower income is not resident of the City, then no credit shall be given. The credit will only be applicable to taxpayers who file a New York City return.

Paragraph 4 of new subsection (g) provides that the local law adopted pursuant to this act shall only be authorized to provide the credit for 3.5 consecutive calendar years, and that the credit can only apply between July 1, 2013 and December 31, 2016. Credits provided in 2013 will be prorated on the basis of the number of days remaining in the calendar year.

Section 2 of the bill provides that the act would take effect immediately.

Justification

Child care is a necessity for many working, families. For unemployed parents, lack of child care is a handicap in looking for work. On average, families with a child under the age of 5 will spend over $9,000 per year on child care. This represents around 10.4 percent of family income. For lower income families earning between $18,000 and $36,000 annually, this can represent 20.4 percent of family income. The recent New York City Council study "The Middle Class Squeeze" describes how middle income households in the City are struggling at an unprecedented extent with reduced employment opportunities, higher education requirements and astronomical costs. According to the Council for Community and Economic Research, Manhattan and Brooklyn ranked first and second place among the top 10 most expensive metropolitan areas in the U.S. Queens achieved fifth place.

The Federal and State governments have their own child care credits that help. Together these programs can provide up to $2,200 per child or dependent to offset allowable costs of care. This is inadequate relative to the need, especially in a high cost state like New York. All the more so because the Federal credit is not refundable, which means low income families are typically unable to use the credit.

For the Federal Credit, a portion of the qualified expenses is credited against personal income tax liability. Qualified expenses currently range from $3,000 to $6,000 depending on whether one or more children (or dependents) are present in the household. The portion of expenses that can be deducted is based on income.

The current Federal credit equals 35 percent of allowable expenses at an income of $15,000, and phases down to 20 percent at incomes over $43,000. Using the same rules for allowable expenses, the State credit is now 110 percent of the Federal credit for earnings under $25,000, and declines gradually to 20 percent of the Federal credit at incomes over 565,000. Close to 220,000 New York City families received the New York State credit in 2010.

Like the State program, the City credit is a refundable credit. The City credit is currently 75 percent of the State credit for incomes of $25,000 or less, and phases down to zero at $30,000. Consequently, middle and lower-middle income families are entirely excluded from receiving a City credit. Because of the limited income range covered by the credit, only 23,500 New York City families received the credit in 2010.

The proposed expansion of the City credit would continue focusing the credit on children up through age 3, since child care is most expensive during those early years and many school and preschool programs are only available at ages 4 and older. The credit will now be expanded to cover middle income households, and will be increased for those households already receiving it. An estimated 102,800 families are expected to receive the City credit. The credit will be 90 percent of the Federal credit for adjusted gross incomes of $45,000 or less, phasing down to 50 percent of the Federal credit at $60,000.

It remains at 50 percent for adjusted gross incomes of up to $150,000, and then phases down to zero at $175,000.

The proposed credit will be fully refundable. Families with incomes under $30,000 eligible for the existing New York City credit will do better under the proposed credit.

The example below shows how adding the New York City credit will enhance support for working families:

Examples:

1: One child, $35,000 income Expenses= $3,000 City credit = $675

2: Two children, $85,000 income Expenses=$6,000 City credit= $ 600

Legislative history

None.

Fiscal implications

None to the state.

Local fiscal implications

The expansion of the credit would cost New York City approximately $32 million for the full calendar year.

Effective date

This act shall take effect immediately.