1.1                          A bill for an act 
  1.2             relating to child care; modifying child care 
  1.3             assistance; expanding the dependent care tax credit; 
  1.4             providing a basic sliding fee transition credit; 
  1.5             amending Minnesota Statutes 1998, sections 119B.03, by 
  1.6             adding subdivisions; and 290.067, subdivision 2; 
  1.7             proposing coding for new law in Minnesota Statutes, 
  1.8             chapter 290. 
  1.9   BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA: 
  1.10     Section 1.  Minnesota Statutes 1998, section 119B.03, is 
  1.11  amended by adding a subdivision to read: 
  1.12     Subd. 11.  [APPLICATION INFORMATION.] Each family that 
  1.13  applies for assistance under this section must be provided with 
  1.14  information on the available tax credits for child care 
  1.15  expenses, including the dependent care credit under section 
  1.16  290.067 and the basic sliding fee transition credit under 
  1.17  section 290.0675 if enacted.  The information must describe 
  1.18  eligibility for the credit and the amount of credit available 
  1.19  for various income levels. 
  1.20     Sec. 2.  Minnesota Statutes 1998, section 119B.03, is 
  1.21  amended by adding a subdivision to read: 
  1.22     Subd. 12.  [BASIC SLIDING FEE EXIT NOTICE.] Each family 
  1.23  that receives assistance under this section must be provided 
  1.24  with an exit notice within one month of the issuance of the 
  1.25  final assistance payment for that family.  The notice must 
  1.26  include the starting and ending dates that the family received 
  1.27  child care assistance through the basic sliding fee program and 
  2.1   information on available tax credits for child care expenses, 
  2.2   including the dependent care credit under section 290.067 and 
  2.3   the basic sliding fee transition credit under section 290.0675 
  2.4   if enacted. 
  2.5      Sec. 3.  Minnesota Statutes 1998, section 290.067, 
  2.6   subdivision 2, is amended to read: 
  2.7      Subd. 2.  [LIMITATIONS.] The credit for expenses incurred 
  2.8   for the care of each dependent shall not exceed $720 in any 
  2.9   taxable year, and the total credit for all dependents of a 
  2.10  claimant shall not exceed $1,440 in a taxable year.  The maximum 
  2.11  total credit shall be reduced according to the amount of the 
  2.12  income of the claimant and a spouse, if any, as follows:  
  2.13     income up to $13,350 $25,520, $720 maximum for one 
  2.14  dependent, $1,440 for all dependents; 
  2.15     income over $13,350 $25,250, the maximum credit for one 
  2.16  dependent shall be reduced by $18 $12 for every $350 of 
  2.17  additional income, $36 $24 for all dependents. 
  2.18     The commissioner shall construct and make available to 
  2.19  taxpayers tables showing the amount of the credit at various 
  2.20  levels of income and expenses.  The tables shall follow the 
  2.21  schedule contained in this subdivision, except that the 
  2.22  commissioner may graduate the transitions between expenses and 
  2.23  income brackets.  
  2.24     Sec. 4.  [290.0675] [BASIC SLIDING FEE TRANSITION CREDIT.] 
  2.25     Subdivision 1.  [AMOUNT OF CREDIT.] (a) A taxpayer who 
  2.26  stops receiving assistance under the basic sliding fee program 
  2.27  in section 119B.03 may claim a credit against the tax due under 
  2.28  this chapter for each child for whom the taxpayer received 
  2.29  assistance. 
  2.30     (b) For a child for whom the taxpayer received assistance 
  2.31  under section 119B.03 for fewer than 12 months, the credit 
  2.32  equals 100 percent of the qualifying expenses for the dependent 
  2.33  care credit for which the taxpayer is eligible for that child 
  2.34  under section 21 of the Internal Revenue Code.  The credit is 
  2.35  reduced by $40 for each $350 or part thereof of income over 
  2.36  $25,250, but in no case is the credit less than zero.  The 
  3.1   taxpayer may claim a credit under this paragraph for three 
  3.2   consecutive tax years, beginning either in the tax year in which 
  3.3   the taxpayer stops receiving assistance for the child under 
  3.4   section 119B.03 or in the following tax year. 
  3.5      (c) For a child for whom the taxpayer received assistance 
  3.6   under section 119B.03 for more than 11 months but fewer than 24 
  3.7   months, the credit equals 70 percent of the qualifying expenses 
  3.8   for the dependent care credit for which the taxpayer is eligible 
  3.9   for that child under section 21 of the Internal Revenue Code.  
  3.10  The credit is reduced by $28 for each $350 or part thereof of 
  3.11  income over $25,250, but in no case is the credit less than 
  3.12  zero.  The taxpayer may claim a credit under this paragraph for 
  3.13  two consecutive tax years, beginning either in the tax year in 
  3.14  which the taxpayer stops receiving assistance for the child 
  3.15  under section 119B.03 or in the following tax year. 
  3.16     (d) A taxpayer who is otherwise eligible for a credit under 
  3.17  this section but who resumes receiving assistance for a child 
  3.18  under section 119B.03 may not receive a credit for that child 
  3.19  under this section in the tax year in which the taxpayer resumes 
  3.20  receiving assistance or in any following tax year. 
  3.21     (e) In the case of a nonresident, part-year resident, or a 
  3.22  person who has earned income not subject to tax under this 
  3.23  chapter, the credit determined under section 21 of the Internal 
  3.24  Revenue Code must be allocated based on the ratio by which the 
  3.25  earned income of the claimant and the claimant's spouse from 
  3.26  Minnesota sources bears to the total earned income of the 
  3.27  claimant and the claimant's spouse. 
  3.28     Subd. 2.  [INCOME.] (a) For purposes of this section, 
  3.29  "income" means the sum of the following: 
  3.30     (1) federal adjusted gross income as defined in section 62 
  3.31  of the Internal Revenue Code; and 
  3.32     (2) the sum of the following amounts to the extent not 
  3.33  included in clause (1): 
  3.34     (i) all nontaxable income; 
  3.35     (ii) the amount of a passive activity loss that is not 
  3.36  disallowed as a result of section 469, paragraph (i) or (m) of 
  4.1   the Internal Revenue Code and the amount of passive activity 
  4.2   loss carryover allowed under section 469(b) of the Internal 
  4.3   Revenue Code; 
  4.4      (iii) an amount equal to the total of any discharge of 
  4.5   qualified farm indebtedness of a solvent individual excluded 
  4.6   from gross income under section 108(g) of the Internal Revenue 
  4.7   Code; 
  4.8      (iv) cash public assistance and relief; 
  4.9      (v) any pension or annuity, including railroad retirement 
  4.10  benefits, all payments received under the federal Social 
  4.11  Security Act, supplemental security income, and veterans 
  4.12  benefits, which was not exclusively funded by the claimant or 
  4.13  spouse, or which was funded exclusively by the claimant or 
  4.14  spouse and which funding payments were excluded from federal 
  4.15  adjusted gross income in the years when the payments were made; 
  4.16     (vi) interest received from the federal or a state 
  4.17  government of any instrumentality or political subdivision 
  4.18  thereof; 
  4.19     (vii) workers' compensation; 
  4.20     (viii) nontaxable strike benefits; 
  4.21     (ix) the gross amounts of payments received in the nature 
  4.22  of disability income or sick pay as a result of accident, 
  4.23  sickness, or other disability, whether funded through insurance 
  4.24  or otherwise; 
  4.25     (x) a lump sum distribution under section 402(e)(3) of the 
  4.26  Internal Revenue Code; 
  4.27     (xi) contributions made by the claimant to an individual 
  4.28  retirement account, including a qualified voluntary employee 
  4.29  contribution; simplified employee pension plan; self-employed 
  4.30  retirement plan; cash or deferred arrangement plan under section 
  4.31  401(k) of the Internal Revenue Code; or deferred compensation 
  4.32  plan under section 457 of the Internal Revenue Code; and 
  4.33     (xii) nontaxable scholarship or fellowship grants. 
  4.34     In the case of an individual who files an income tax return 
  4.35  on a fiscal year basis, the term "federal adjusted gross income" 
  4.36  means federal adjusted gross income reflected in the fiscal year 
  5.1   ending in the next calendar year.  Federal adjusted gross income 
  5.2   may not be reduced by the amount of a net operating loss 
  5.3   carryback or carryforward or a capital loss carryback or 
  5.4   carryforward allowed for the year. 
  5.5      (b) "Income" does not include: 
  5.6      (1) amounts excluded pursuant to sections 101(a) and 102 of 
  5.7   the Internal Revenue Code; 
  5.8      (2) amounts of any pension or annuity that were exclusively 
  5.9   funded by the claimant or spouse if the funding payments were 
  5.10  not excluded from federal adjusted gross income in the years 
  5.11  when the payments were made; 
  5.12     (3) surplus food or other relief in kind supplied by a 
  5.13  governmental agency; 
  5.14     (4) relief granted under chapter 290A; and 
  5.15     (5) child support payments received under a temporary or 
  5.16  final decree of dissolution or legal separation. 
  5.17     Subd. 3.  [INFLATION ADJUSTMENT.] The dollar amount of the 
  5.18  income threshold at which the maximum credits begin to be 
  5.19  reduced under subdivision 1 must be adjusted for inflation.  The 
  5.20  commissioner shall adjust the threshold amounts by the 
  5.21  percentage determined under section 290.06, subdivision 2d, for 
  5.22  the taxable year. 
  5.23     Subd. 4.  [CREDIT TO BE REFUNDABLE.] If the amount of 
  5.24  credit which a claimant would be eligible to receive under this 
  5.25  subdivision exceeds the claimant's tax liability under this 
  5.26  chapter, the excess amount of the credit shall be refunded to 
  5.27  the claimant by the commissioner of revenue. 
  5.28     Subd. 5.  [RIGHT TO FILE CLAIM.] The right to file a claim 
  5.29  under this section shall be personal to the claimant and shall 
  5.30  not survive death, but such right may be exercised on behalf of 
  5.31  a claimant by the claimant's legal guardian or 
  5.32  attorney-in-fact.  When a claimant dies after having filed a 
  5.33  timely claim the amount thereof shall be disbursed to another 
  5.34  member of the household as determined by the commissioner of 
  5.35  revenue.  If the claimant was the only member of a household, 
  5.36  the claim may be paid to the claimant's personal representative, 
  6.1   but if neither is appointed and qualified within two years of 
  6.2   the filing of the claim, the amount of the claim shall escheat 
  6.3   to the state. 
  6.4      Sec. 5.  [EFFECTIVE DATE.] 
  6.5      Sections 3 and 4 are effective for tax years beginning 
  6.6   after December 31, 1998.