FISCAL NOTE
Date Requested: February 12, 2025
Time Requested: 09:53 PM |
| Agency: |
Tax & Revenue Department, WV State |
|---|
| CBD Number: |
Version: |
Bill Number: |
Resolution Number: |
| 1037 |
Introduced |
SB221 |
|
|---|
| CBD Subject: |
Taxation |
|---|
|
FUND(S):
General Revenue Fund
Sources of Revenue:
General Fund
Legislation creates:
Decreases Existing Revenue, Increases Existing Expenses
Fiscal Note Summary
Effect this measure will have on costs and revenues of state government.
The stated purpose of this bill is to create and authorize a state child and child care tax credit.
Based on our interpretation, the proposed bill would establish a refundable personal income tax credit equivalent to 20 percent of the federal childcare expenses credit claimed or 10 percent of the sum of the federal child and additional child tax credits claimed, whichever is greater. The credit is limited to resident taxpayers with federal adjusted gross income of $100,000 or less. The legislation would be effective for years beginning on and after January 1, 2025.
Currently, the Federal Child Tax Credit is $2,000 per qualifying child. Unless this provision of the 2017 Tax Cuts and Jobs Act is extended, the credit will decrease to $1,000 per qualifying child after 2025. Additionally, the income thresholds related to eligibility for the Federal Child Tax Credit will be reduced.
According to our interpretation, under current federal guidelines, the legislation, if passed, would result in a decrease in General Revenue Fund collections of roughly $40.0 million in FY2026 and subsequent fiscal years. However, if the Federal Child Tax Credit amount is reduced to $1,000 per eligible child for 2026, the cost of the West Virginia credit will be reduced by roughly 50 percent in subsequent fiscal years. It is estimated that up to 130,000 tax returns per year will be impacted by the legislation.
Additional administrative costs incurred by the State Tax Department would be $29,150 in FY2026 and $11,000 in subsequent fiscal years.
Fiscal Note Detail
| Effect of Proposal |
Fiscal Year |
2025
Increase/Decrease
(use"-") |
2026
Increase/Decrease
(use"-") |
Fiscal Year
(Upon Full
Implementation) |
| 1. Estmated Total Cost |
0 |
29,150 |
11,000 |
| Personal Services |
0 |
11,000 |
11,000 |
| Current Expenses |
0 |
0 |
0 |
| Repairs and Alterations |
0 |
0 |
0 |
| Assets |
0 |
1,650 |
0 |
| Other |
0 |
16,500 |
0 |
| 2. Estimated Total Revenues |
0 |
-40,000,000 |
-40,000,000 |
Explanation of above estimates (including long-range effect):
Based on our interpretation, the proposed bill would establish a refundable personal income tax credit equivalent to 20 percent of the federal childcare expenses credit claimed or 10 percent of the sum of the federal child and additional child tax credits claimed, whichever is greater. The credit is limited to resident taxpayers with federal adjusted gross income of $100,000 or less. The legislation would be effective for years beginning on and after January 1, 2025.
Currently, the Federal Child Tax Credit is $2,000 per qualifying child. Unless this provision of the 2017 Tax Cuts and Jobs Act is extended, the credit will decrease to $1,000 per qualifying child after 2025. Additionally, the income thresholds related to eligibility for the Federal Child Tax Credit will be reduced.
According to our interpretation, under current federal guidelines, the legislation, if passed, would result in a decrease in General Revenue Fund collections of roughly $40.0 million in FY2026 and subsequent fiscal years. However, if the Federal Child Tax Credit amount is reduced to $1,000 per eligible child for 2026, the cost of the West Virginia credit will be reduced by roughly 50 percent in subsequent fiscal years. It is estimated that up to 130,000 tax returns per year will be impacted by the legislation.
Additional administrative costs incurred by the State Tax Department would be $29,150 in FY2026 and $11,000 in subsequent fiscal years.
Memorandum
The stated purpose of this bill is to create and authorize a state child and child care tax credit.
The bill seeks to establish a child and child care tax credit based on the federal child and child care tax credits. Though both credits are to be created, taxpayers will only be able to utilize one or the other of the credits in a given tax year.
Under 26 U.S.C. §21, “qualifying relative” is defined in part based upon relationship to the taxpayer. “Relationship” is defined very broadly and includes non-children of the taxpayer. A “support” element is also included. The federal “dependent care” credit is claimed without distinction between the taxpayer’s “child” and any “qualifying relative”. It is not clear from the bill if the state childcare credit anticipates the broader definition of “dependent” in the federal statute, to which the state statute refers, resulting in a potential higher state tax credit.
The amount of credit allowed under this section that exceeds the resident individual’s income taxes due is refundable. However, per the legislation, refunds of less than $10 may not be issued due to the administrative cost of processing.
The tax credit is allowed for “resident individuals” who claim either a federal child tax credit or federal childcare expenses credit for an eligible child on the individual’s federal tax return. No definition of “resident individuals” is given.
The credit authorized by this section shall not be claimed by any taxpayer if the federal adjusted gross income for the taxpayer is in excess of $100,000. It is unclear if joint filers could have an adjusted gross income of $200,000.
Section 26, Article 21, Chapter 11 [§11-21-26] is already in use, having been created during the 2nd Special Session of the Legislature in 2024 by HB 226. This may constitute a title defect.
Further, HB 226 created a “child and dependent care credit” like the “childcare tax credit” described in this bill. The tax credit in HB 226 was nonrefundable and 50 percent of the federal credit was allowed. On its face, this bill does not attempt to amend or “repeal and replace” the already existing §11-21-26.
Person submitting Fiscal Note: Mark Muchow
Email Address: RADfiscal@wv.gov