HOUSE OF REPRESENTATIVES

H.B. NO.

2485

TWENTY-NINTH LEGISLATURE, 2018

 

STATE OF HAWAII

 

 

 

 

 

 

A BILL FOR AN ACT

 

 

RELATING TO THE EARNED INCOME TAX CREDIT.

 

 

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

 


     SECTION 1.  The legislature finds that Hawaii has the second highest tax burden in the country, and that a disproportionate share of this burden falls on the working poor and their families.  The 2017 legislature established a state earned income tax credit in order to help combat poverty while boosting the local economy.  According to the Hawaii Appleseed Center, an earned income tax credit reaches more people than social services programs.  The Tax Policy Center reports that the federal earned income tax credit has been the single most effective antipoverty program for working people, lifting about 6.5 million people out of poverty. 

     The legislature finds that Hawaii's earned income tax credit has significant differences from those established in the 27 other states, plus the District of Columbia, that have enacted them.  The most significant difference is that unlike the refundable credits offered in 24 out of these 28 jurisdictions, or the federal credit, Hawaii's earned income tax credit is nonrefundable.  A refundable tax credit is advantageous to the working poor because of its ability to potentially increase a tax refund, providing needed cash to the low-income families who need it most. 

     Because Hawaii's earned income tax credit is nonrefundable, the relief it can provide to working families is limited.  Approximately two-thirds of the people who might have benefitted from a refundable earned income tax credit will receive nothing from a nonrefundable credit.  According to the Institute on Taxation and Economic Policy, the legislature "should consider lifting these restrictions during the next legislative session."  

     The purpose of this Act is to amend the Hawaii earned income tax credit by making the tax credit refundable. 

     SECTION 2.  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] an 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.

     (c)  For purposes of this section, "qualifying individual taxpayer" means a taxpayer that:

     (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.

     (d)  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 liability [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 a tax credit properly claimed by a resident individual who has no income tax liability shall be paid to the resident individual; and provided further that no refund or payment on account of the tax credit allowed by this section shall be made for an amount 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)  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)  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 3.  Statutory material to be repealed is bracketed and stricken.  New statutory material is underscored.

     SECTION 4.  This Act shall take effect upon its approval.

 

INTRODUCED BY:

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Report Title:

Taxation; Earned Income Tax Credit; Refundable

 

Description:

Amends the state earned income tax credit by making it refundable.

 

 

 

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