S.B. NO.














relating to taxation.





SECTION 1. The legislature finds that the federal earned income tax credit (EITC) is one of the most successful anti-poverty programs by providing tax relief and refunds to low-income and working class families. According to the National Partnership for Women and Families, over 10,000 families in the state have incomes that fall below the poverty level. Since it is targeted especially at workers with children, about 18,000 children in Hawaii are kept out of poverty by it each year. It is particularly important to women, who typically earn less than men and are more likely to bear the expenses of raising children on their own. Research shows that the federal EITC increases employment rates and wages of single mothers, thereby helping to narrow the gender income gap, increasing lifetime earnings, and reducing the reliance on government benefits. Studies even suggest that it may improve the health of mothers and their children. So far, twenty-six states and the District of Columbia have built on this success and created a state working family tax credit. It is estimated that this would cost about $24,000,000 per year for the State.

The purpose of this Act is to create a tax credit, set at ten per cent of the federal EITC, which would help eleven thousand families in the State.

SECTION 2. Chapter 235, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:

"235-   Hawaii working family tax credit. (a) Each resident individual taxpayer who:

(1) Files an individual income tax return for a taxable year; and

(2) Is not claimed or is not eligible to be claimed as a dependent by another taxpayer for income tax purposes,

may claim a refundable earned income tax credit. The tax credit, for the appropriate taxable year, shall be equal to ten per cent of the federal earned income tax credit allowed under section 32 of the Internal Revenue Code, as amended, and reported as such on the individual's federal income tax return. If the tax credits claimed by a resident individual exceed the amount of income tax payment due from the resident individual, the excess of credit over payment due shall be refunded to the resident individual; 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.

(b) For a non-resident individual taxpayer, the tax credit shall equal the amount of the tax credit calculated in subsection (a) multiplied by the ratio of adjusted gross income attributed to this State to the entire adjusted gross income computed without regard to source in the State pursuant to section 235-5.

(c) To claim the tax credit allowed under this section, an individual taxpayer shall use the same filing status on the taxpayer's Hawaii income tax return as used on the taxpayer's federal income tax return for the taxable year.

(d) Any claim, including any amended claim, for tax credits 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 tax credit may be claimed. Failure to comply with this subsection shall constitute a waiver of the right to claim the tax 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 determination that the taxpayer's claim of 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 determination that the taxpayer's claim of credit under this section was due to the reckless or intentional disregard of rules and regulations to qualify for the tax credit, but not due to fraud.

(f) Any person who is a tax return preparer with respect to any return or claim for refund who fails to comply with due diligence requirements imposed by the Secretary of the United States Department of the Treasury by regulations with respect to determining eligibility for, or the amount of, the credit allowable by section 32 of the Internal Revenue Code shall pay a penalty of $100 for each failure.

(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 report to the legislature, the governor, and the public 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."

SECTION 3. New statutory material is underscored.

SECTION 4. This Act, upon its approval, shall apply to

taxable years beginning after December 31, 2016.








Report Title:

Tax Credit; Earned Income



Creates the Hawaii Working Family Tax Credit, a refundable credit capped at 10 percent of the federal 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.