H.B. NO.



















SECTION 1. The legislature finds that there are limited options for affordable child care before and after school and during school breaks. With a growing kupuna population, families are also caring for elderly dependents who require care and supervision during the day. Many family members are forced to use vacation or sick leave to take care of their children and elderly dependents during breaks and holidays. Managing child and dependent care schedules may result in less productivity and increased stress for employees and employers in the workplace.

The legislature also finds that the federal government has incorporated a Dependent Care Flexible Spending Account ("FSA") into the tax code to allow pre-tax dollars for qualified out-of-pocket dependent care expenses necessary for family members to continue to work. The Dependent Care FSA can cover services such as daycare, before- and after- school programs, and in-home care. According to the Pew Research Center, sixty-six per cent of households are dual income households and are often in higher tax brackets. With Hawaii having one of the highest costs for child and dependent care in the nation, parents and caretakers may save money by using an FSA to help finance child and dependent care expenses because the FSA funds are not subject to payroll taxes. Currently, Hawaii has a Dependent Care FSA as part of the Island Flex Flexible Benefit Plan, however, this program is only for state employees.

The purpose of this Act is to establish a Dependent Care Flexible Spending Account to allow pre-tax dollars to be used for eligible dependent care expenses for all employees in the state who wish to participate.

SECTION 2. Chapter 235-1, Hawaii Revised Statutes, is amended by adding a new definition to be appropriately inserted and to read as follows:

""Qualifying individual" means the same as in section 129 of the Internal Revenue Code."

SECTION 3. Chapter 235, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:

"235‑ Dependent Care Flexible Spending Accounts. (a) There shall be allowed as a deduction from gross income the amount, not to exceed $5,000, during the taxable year paid into an account that qualifies as a dependent care flexible spending account pursuant to section 129 of the Internal Revenue Code of 1988, as amended. The dependent care flexible spending account shall allow eligible employees to use pretax compensation to pay for expenses incurred for the care of qualifying individuals that enable the taxpayer to continue to work. A qualifying individual includes the taxpayer's dependent that is under thirteen years old or the taxpayer's dependent or spouse who is physically or mentally incapable of self-care.

In the case of a married couple filing separate returns, the sum of the deductions allowable to each of them for the taxable year shall not exceed $2,500, or $5,000 for a joint return, for amounts paid for eligible dependent care expenses. Eligible dependent care expenses include, but are not limited to, child care services, summer school programs, before and after school programs, and adult day care programs.

(b) For purposes of this section, the term "dependent care flexible spending account" means a trust created or organized in Hawaii for the exclusive benefit of a qualifying individual(s) pursuant to the following:

(1) Contributions of more than $5,000 for a joint return and $2,500 for an individual return shall not be accepted for the taxable year, exclusive of interest paid or accrued;

(2) The trustee is a bank, a savings and loan association, a credit union, or a depository financial services loan company, chartered, licensed, or supervised under federal or state law, whose accounts are insured by the Federal Deposit Insurance Corporation, the National Credit Union Administration, or any agency of this State or any federal agency established for the purpose of insuring accounts in these financial institutions;

(3) The assets of the trust shall be invested only in full savings or time deposits. Funds held in the trust may be commingled for purposes of investment, but individual records shall be maintained by the trustee for each individual housing account holder that show all transactions in detail; and

(4) The trustee shall not distribute the funds in the account unless the trustee:

(A) Receives a completed reimbursement form along with a copy of the paid receipt for the expense.

(B) Verifies that the expense is an eligible dependent care expense made on behalf of a qualifying individual that allows the account owner to continue to work.

(c) Any contributions paid out of a dependent care FSA shall be included in the gross income of the taxpayer unless the amount is used exclusively to pay for eligible dependent care expenses for a qualifying individual which allow the taxpayer to work.

(d) Participation in the dependent care FSA must continue for the entire tax year as required by the Internal Revenue Service. Taxpayers may modify contributions if there is a valid status change including, but not limited to, marriage, divorce, and the birth of a child.

(e) The Internal Revenue Service prohibits the return of any unused funds remaining in the account at the end of the taxable year in which they were deposited. Unused funds shall escheat to the state.

(f) The trustee of a dependent care flexible spending account shall make reports regarding the account to the director with respect to contributions, distributions, and other matters as the director may require under the rules. The reports shall be filed at a time and in a manner as may be required under the rules adopted under chapter 91.

SECTION 4. New statutory material is underscored.

SECTION 5. This Act shall take effect on July 1, 2021; provided that section 2 shall apply to taxable years beginning after December 31, 2021.









Report Title:

Dependent Care Flexible Spending Accounts



Establishes Dependent Care Flexible Spending Accounts for all working taxpayers. Defines qualifying individuals and eligible expenses. Outlines the requirements and limitations of the accounts. Applies to taxable years beginning after 12/31/2021.





The summary description of legislation appearing on this page is for informational purposes only and is not legislation or evidence of legislative intent.