HOUSE OF REPRESENTATIVES
TWENTY-NINTH LEGISLATURE, 2018
STATE OF HAWAII
A BILL FOR AN ACT
relating to taxation.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:
SECTION 1. The legislature finds that the cost of living in Hawaii is one of the highest in the nation. Recent reports have shown that more and more local families are moving off island due to financial burdens, with financial instability forcing families to take on debt that can sometimes exceed the full earned income tax credit lump sum payment. Low- and moderate-income households are turning to credit cards to finance their expenses, with more than one in four paying interest rates above twenty per cent, making accruing precautionary savings extraordinarily difficult.
The legislature further finds that economic precarity affects a number of families on a daily basis. A survey conducted in 2016 highlighted that forty-nine per cent of respondents said they do not have enough funds to cover monthly expenses, and other research has pointed out that low-income families often experience a shortfall of only a few hundred dollars.
In 2015, the Center for Economic Progress released a report detailing Chicago's recent full earned income tax credit periodic payment pilot program, which demonstrated that those receiving periodic payments reported a larger disposable income at certain points in the year and experienced less stress in meeting monthly expenses. According to the report, eighty-six per cent of the periodic payment funds were used to pay down debt, pay current bills, and purchase necessities and the share of participants planning to save a portion of their tax refund doubled from the year before, suggesting that periodic payments might improve recipients' capacity for saving during tax season. After the Chicago full earned income tax credit pilot program, ninety per cent of participants expressed a preference for the periodic payment model over a single lump-sum payment.
The legislature further finds that periodic payments could increase the affordability of housing, provide cover for short-term day-to-day expenses, or decrease dependence on payday loans and other forms of debt while also enhancing other initiatives, such as refundable assistance for higher education and child care.
The purpose of this Act is to help families finance monthly expenses and make them less susceptible to debt by making the earned income tax credit refundable in twelve monthly payments, unless the taxpayer opts out to receive the refund in a lump sum.
SECTION 2. Section 231-23, Hawaii Revised Statutes, is amended by amending subsection (c) to read as follows:
"(c) This subsection shall apply to all taxes.
(1) All refunds shall
be paid only upon a form to be known as a "refund voucher" prepared
by the collector. The refund vouchers
shall set forth all the details of each transaction, [
shall] be approved
by the director, and [ shall] be forwarded to the comptroller from time
to time. The comptroller shall issue a
warrant, in the form prescribed by section 40-52, for the payment of any [ such]
refund out of the tax reserve fund hereinafter created; provided that if the
person entitled to the refund is delinquent in the payment of any tax, the
comptroller, upon demand of the collector and after notice to the delinquent
taxpayer, shall withhold the amount of the delinquent taxes, together with
penalties and interest thereon, from the amount of the refund and pay the same
to the collector.
(2) There is hereby
appropriated, from the general revenues of the State not otherwise
appropriated, the sum of $25,000 [
which] that shall be set aside
as a trust fund to be known as the tax reserve fund. Within the tax reserve fund there shall be
a subaccount for the earned income tax credit established under section
235-55.75. All refunds of taxes
collected by the department under chapters of the law under title 14
administered by the department shall be made out of the tax reserve fund[ .];
provided that refunds under section 235-55.75 shall be made from the subaccount
for the earned income tax credit. The director of taxation, from time to time,
may deposit taxes collected under chapters of the law under title 14
administered by the department in the state treasury to the credit of the tax
reserve fund so that there may be maintained at all times a fund not exceeding
$25,000. The amounts deposited shall be
made from the taxes with respect to which a particular refund is made."
SECTION 3. Section 235-55.75, Hawaii Revised Statutes, is amended to read as follows:
§235-55.75[ ]] Earned income tax credit. (a) Each qualifying individual taxpayer may claim
a [ nonrefundable] refundable earned income tax credit. The tax credit, for the appropriate taxable
year, shall be twenty per cent of the federal earned income tax credit allowed
and properly claimed under section 32 of the Internal Revenue Code and reported
as such on the individual's federal income tax return.
(b) For a part-year resident, the tax credit shall equal the amount of the tax credit calculated in subsection (a) multiplied by the ratio of Hawaii adjusted gross income to federal adjusted gross income.
For purposes of this section, "qualifying individual taxpayer"
means a taxpayer [
(1) Files a federal income tax return for the taxable year claiming the earned income tax credit under section 32 of the Internal Revenue Code; and
(2) Files a Hawaii income tax return using the filing status used on the federal income tax return for the taxable year and claiming the same dependents claimed on the federal income tax return for the taxable year.
The credit allowed under this section shall be claimed against the net
income tax liability for the taxable year. If the tax credit under this section
exceeds the taxpayer’s income tax liability, the excess of the tax credit over
may be used as a credit against the taxpayer’s net income tax
liability in subsequent years until exhausted.] shall be refunded to the
taxpayer; provided that the tax credit properly claimed by an individual who
has no income tax liability shall be paid to the individual; and provided
further that no refunds or payment on account of the tax credit allowed by this
section shall be made for amounts less than $1. All claims, including amended claims, for a
tax credit under this section shall be filed on or before the end of the
twelfth month following the close of the taxable year for which the credit may
be claimed. Failure to comply with the foregoing provision shall constitute a waiver
of the right to claim the credit.
(e) No credit shall be allowed under this section for any taxable year in the disallowance period. For purposes of this subsection, the disallowance period is:
(1) The period of ten taxable years after the most recent taxable year for which there was a final administrative or judicial decision that the taxpayer's claim for credit under this section was due to fraud; and
(2) The period of two taxable years after the most recent taxable year for which there was a final administrative or judicial decision disallowing the taxpayer’s claim for credit.
(f) A refund under subsection (d) shall be made in twelve monthly payments, unless the taxpayer opts to receive the refund as a lump sum. The refund shall be made out of the tax reserve fund subaccount for the earned income tax credit in the manner provided in section 231-23(c).
(f)] (g) The director of taxation:
(1) Shall prepare any forms necessary to claim a tax credit under this section;
(2) May require proof of the claim for the tax credit;
(3) Shall alert eligible taxpayers of the tax credit using appropriate and available means;
(4) Shall prepare an annual public report to the legislature and the governor containing the:
(A) Number of credits granted for the prior calendar year;
(B) Total amount of the credits granted; and
(C) Average value of the credits granted to taxpayers whose earned income falls within various income ranges; and
(5) May adopt rules pursuant to chapter 91 to effectuate this section.
(g)] (h) This section shall apply to taxable years
beginning after December 31, 2017, but shall not apply to taxable years
beginning after December 31, 2022."
SECTION 4. This Act does not affect rights and duties that matured, penalties that were incurred, and proceedings that were begun before its effective date.
SECTION 5. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.
SECTION 6. This Act, upon its approval, shall apply to taxable years beginning after December 31, 2017.
Earned Income Tax Credit; Refundable; Tax Reserve Fund Subaccount
Makes the earned income tax credit refundable in twelve monthly payments, unless the taxpayer opts to receive the refund in a lump sum. Creates a subaccount in the tax reserve fund for refunds of the earned income tax credit.
The summary description of legislation appearing on this page is for informational purposes only and is not legislation or evidence of legislative intent.