THIRTIETH LEGISLATURE, 2019
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 full-time child care has risen over the past years. Such cost increases should be reflected in the income tax credits allowed for expenses for household and dependent care services. The legislature further finds that early learning programs facilitate the academic and social development of young children and should therefore be supports. Full-time child care programs allow parents to obtain and retain secure, stable employment, which increases the economic well-being of the family as a whole.
The purpose of this Act is to increase the taxpayer's applicable percentage of employment-related expenses and dollar limit on the amount creditable, which constitute the tax credit for expenses for household and dependent care services necessary for gainful employment.
SECTION 2. Section 235-55.6, Hawaii Revised Statutes, is amended to read as follows:
"§235-55.6 Expenses for household and dependent care services necessary for gainful employment. (a) Allowance of credit.
(1) In general. For each resident taxpayer, who files an
individual income tax return for a taxable year, and who is not claimed or is
not otherwise eligible to be claimed as a dependent by another taxpayer for
federal or Hawaii state individual income tax purposes, who maintains a
which] that includes as a member one or more
qualifying individuals (as defined in subsection (b)(1)), there shall be
allowed as a credit against the tax imposed by this chapter for the taxable
year an amount equal to the applicable percentage of the employment-related
expenses (as defined in subsection (b)(2)) paid by the individual during the
taxable year. If the tax credit claimed
by a resident taxpayer exceeds the amount of income tax payment due from the
resident taxpayer, the excess of the credit over payments due shall be refunded
to the resident 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 refunds or payment on account
of the tax credit allowed by this section shall be made for amounts less than
(2) Applicable percentage. For purposes of paragraph (1), the taxpayer's applicable percentage shall be determined as follows:
Adjusted gross income Applicable percentage
over $25,000 [
$25,000 but [
not over $30,000
$30,000 but [
not over $35,000
$35,000 but [
not over $40,000
$40,000 but [
not over $45,000
$45,000 but [
not over $50,000
(b) Definitions of qualifying individual and employment-related expenses. For purposes of this section:
(1) Qualifying individual. The term "qualifying individual" means:
(A) A dependent of the
taxpayer who is under the age of thirteen and with respect to whom the taxpayer
is entitled to a deduction under section 235‑54(a)[
(B) A dependent of the
taxpayer who is physically or mentally incapable of caring for oneself[
(C) The spouse of the taxpayer, if the spouse is physically or mentally incapable of caring for oneself.
(2) Employment-related expenses.
(A) In general. The term "employment-related
expenses" means amounts paid for the following expenses, but only if [
the expenses are incurred to enable the taxpayer to be gainfully
employed for any period for which there are one or more qualifying individuals
with respect to the taxpayer:
(i) Expenses for
(ii) Expenses for the care of a qualifying individual.
term shall not include any amount paid for services outside the taxpayer's
household at a camp where the qualifying individual stays overnight.
(B) Exception. Employment-related expenses described in
subparagraph (A) [
which] that are incurred for services outside
the taxpayer's household shall be taken into account only if incurred for the
(i) A qualifying
individual described in paragraph (1)(A)[
(ii) A qualifying individual (not described in paragraph (1)(A)) who regularly spends at least eight hours each day in the taxpayer's household.
(C) Dependent care
centers. Employment-related expenses
described in subparagraph (A) [
which] that are incurred for
services provided outside the taxpayer's household by a dependent care center
(as defined in subparagraph (D)) shall be taken into account only if:
center complies with all applicable laws, rules, and regulations of this State,
if the center is located within the jurisdiction of this State; or
center complies with all applicable laws, rules, and regulations of the
jurisdiction in which the center is located, if the center is located outside
the requirements of subparagraph (B) are met.
(D) Dependent care
center defined. For purposes of this
paragraph, the term "dependent care center" means any facility [
(i) Provides care for
more than six individuals (other than individuals who reside at the facility)[
(ii) Receives a fee,
payment, or grant for providing services for any of the individuals (regardless
of whether [
such] the facility is operated for profit).
Dollar limit on amount creditable.
The amount of the employment-related expenses incurred during any taxable
which] that may be taken into account under subsection (a)
shall not exceed:
if there is one qualifying individual with respect to the taxpayer for [ such]
the taxable year[ ,]; or
if there are two or more qualifying individuals with respect to the taxpayer
for [ such] the taxable year.
The amount determined under paragraph (1) or (2) (whichever is applicable) shall be reduced by the aggregate amount excludable from gross income under section 129 (with respect to dependent care assistance programs) of the Internal Revenue Code for the taxable year.
(d) Earned income limitation.
(1) In general. Except as otherwise provided in this
subsection, the amount of the employment-related expenses incurred during any
taxable year [
which] that may be taken into account under
subsection (a) shall not exceed:
(A) In the case of an
individual who is not married at the close of [
such] the year, [ such]
the individual's earned income for [ such] the year[ ,];
(B) In the case of an
individual who is married at the close of [
such] the year, the
lesser of [ such] the individual's earned income or the earned
income of the individual's spouse for [ such] the year.
(2) Special rule for
spouse who is a student or incapable of caring for oneself. In the case of a spouse who is a student or a
qualified individual described in subsection (b)(1)(C), for purposes of
paragraph (1), [
such] the spouse shall be deemed for each month
during which [ such] the spouse is a full-time student at an
educational institution, or is [ such] a qualifying individual, to be
gainfully employed and to have earned income of not less than:
(A) $200 if subsection
(c)(1) applies for the taxable year[
(B) $400 if subsection (c)(2) applies for the taxable year.
In the case of any husband and wife, this paragraph shall apply with respect to only one spouse for any one month.
(e) Special rules. For purposes of this section:
(1) Maintaining household. An individual shall be treated as maintaining a household for any period only if over half the cost of maintaining the household for the period is furnished by the individual (or, if the individual is married during the period, is furnished by the individual and the individual's spouse).
(2) Married couples must file joint return. If the taxpayer is married at the close of the taxable year, the credit shall be allowed under subsection (a) only if the taxpayer and the taxpayer's spouse file a joint return for the taxable year.
(3) Marital status. An individual legally separated from the individual's spouse under a decree of divorce or of separate maintenance shall not be considered as married.
(4) Certain married individuals living apart. If:
(A) An individual who is married and who files a separate return:
(i) Maintains as the
individual's home a household that constitutes for more than one-half of the
taxable year the principal place of abode of a qualifying individual[
(ii) Furnishes over
half of the cost of maintaining the household during the taxable year[
(B) During the last six months of the taxable year the individual's spouse is not a member of the household,
the individual shall not be considered as married.
(5) Special dependency test in case of divorced parents, etc. If:
(A) Paragraph (2) or
(4) of section 152(e) of the Internal Revenue Code of 1986, as amended, applies
to any child with respect to any calendar year[
(B) The child is under age thirteen or is physically or mentally incompetent of caring for the child's self,
in the case of any taxable year beginning in the calendar year, the child shall be treated as a qualifying individual described in subsection (b)(1)(A) or (B) (whichever is appropriate) with respect to the custodial parent (within the meaning of section 152(e)(1) of the Internal Revenue Code of 1986, as amended), and shall not be treated as a qualifying individual with respect to the noncustodial parent.
(6) Payments to related individuals. No credit shall be allowed under subsection (a) for any amount paid by the taxpayer to an individual:
(A) With respect to
whom, for the taxable year, a deduction under section 151(c) of the Internal
Revenue Code of 1986, as amended (relating to deduction for personal exemptions
for dependents), is allowable either to the taxpayer or the taxpayer's
(B) Who is a child of the taxpayer (within the meaning of section 151(c)(3) of the Internal Revenue Code of 1986, as amended) who has not attained the age of nineteen at the close of the taxable year.
For purposes of this paragraph, the term "taxable year" means the taxable year of the taxpayer in which the service is performed.
(7) Student. The term "student" means an individual who, during each of five calendar months during the taxable year, is a full-time student at an educational organization.
(8) Educational organization. The term "educational organization" means a school operated by the department of education under chapter 302A, an educational organization described in section 170(b)(1)(A)(ii) of the Internal Revenue Code of 1986, as amended, or a university, college, or community college.
(9) Identifying information required with respect to service provider. No credit shall be allowed under subsection (a) for any amount paid to any person unless:
(A) The name, address,
taxpayer identification number, and general excise tax license number of the
person are included on the return claiming the credit[
(B) If the person is
located outside the State, the name, address, and taxpayer identification
number, if any, of the person and a statement indicating that the service
provider is located outside the State and that the general excise tax license
and, if applicable, the taxpayer identification numbers are not required[
(C) If the person is an organization described in section 501(c)(3) of the Internal Revenue Code and exempt from tax under section 501(a) of the Internal Revenue Code, the name and address of the person are included on the return claiming the credit.
In the case of a failure to provide the information required under the preceding sentence, the preceding sentence shall not apply if it is shown that the taxpayer exercised due diligence in attempting to provide the information so required.
(f) On September 30, 2020, and on September 30 of each year thereafter, the department of taxation shall calculate an adjustment to the adjusted gross income thresholds under subsection (a) and the dollar limits on amounts creditable under subsection (c) based on the annual change in the urban Hawaii consumer price index or successor index for the twelve months prior to September 1 of that year, as calculated by the United States Department of Labor. The adjusted gross income thresholds and dollar limits on amounts creditable shall take effect on January 1 of the following year.
(f)] (g) Rules.
The director of taxation shall [ prescribe such] adopt
rules under chapter 91 as may be necessary to carry out the purposes of this
SECTION 3. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.
SECTION 4. This Act shall take effect on July 1, 2050, and shall apply to taxable years beginning after December 31, 2019.
Income Tax Credit; Expenses for Household and Dependent Care Services Necessary for Gainful Employment; Keiki Caucus
Amends the income tax credit for expenses for household and dependent care services necessary for gainful employment by increasing the taxpayer's applicable percentage of employment-related expenses and dollar limit on amounts creditable that constitute the tax credit. Requires the Department of Taxation to make annual adjustments for inflation to the adjusted gross income thresholds and dollar limits on amounts creditable. Applies to taxable years beginning after 12/31/2019. Effective 7/1/2050. (SD1)
The summary description of legislation appearing on this page is for informational purposes only and is not legislation or evidence of legislative intent.