HOUSE OF REPRESENTATIVES

H.B. NO.

1049

THIRTY-SECOND LEGISLATURE, 2023

H.D. 2

STATE OF HAWAII

 

 

 

 

 

 

A BILL FOR AN ACT

 

 

RELATING TO INCOME TAX.

 

 

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

 


SECTION 1. Chapter 235, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:

"235-    Tax credit for teacher expenses. (a) There shall be allowed to each qualifying taxpayer subject to the tax imposed by this chapter, a tax credit for qualifying expenses that shall be deductible from the taxpayer's net income tax liability, if any, imposed by this chapter for the taxable year in which the credit is properly claimed.

(b) The amount of the tax credit shall be equal to eighty per cent of the amount expended for qualifying expenses in a taxable year; provided that the credit shall not exceed $500 per taxable year.

(c) If the tax credit claimed by the taxpayer under this section exceeds the taxpayer's income liability, the excess of the credit over liability may be used as a credit against the taxpayer's income tax liability in subsequent years until exhausted.

All claims for the tax credit under this section, including amended claims, 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.

(d) No other tax credit or deduction shall be claimed under this chapter for qualifying expenses used to claim a tax credit under this section for the taxable year.

(e) The director of taxation shall:

(1) Prepare any forms necessary to claim a credit under this section;

(2) May require the taxpayer to furnish reasonable information to ascertain the validity of the claim for the tax credit under this section; and

(3) May adopt rules pursuant to chapter 91 to effectuate the purposes of this section.

(f) As used in this section:

"Qualifying expenses" means expenses paid or incurred by a qualifying taxpayer in connection with:

(1) Books;

(2) Supplies, other than nonathletic supplies for courses of instruction in health or physical education;

(3) Computer equipment, including related software and services and other equipment; and

(4) Supplementary materials used by the qualifying taxpayer in the classroom.

"Qualifying taxpayer" means an individual employed by the department of education, a charter school, or a private school in the State as a prekindergarten or kindergarten through twelfthgrade teacher for at least nine hundred hours during the taxable year."

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

""Cost-of-living adjustment factor" means a factor calculated by adding 1.0 to the percentage change in the Consumer Price Index for All Urban Consumers, as published by the United States Department of Labor, from July of the preceding calendar year to July of the current calendar year; provided that, if the Consumer Price Index is discontinued, the Chained Consumer Price Index for All Urban Consumers, as published by the United States Department of Labor, shall be used to calculate the cost-of-living adjustment factor."

SECTION 3. 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 household which 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 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 $1.

(2) Applicable percentage. For purposes of paragraph (1), the taxpayer's applicable percentage shall be [determined as follows:

Adjusted gross income Applicable percentage

Not over $25,000 25%

Over $25,000 but 24%

not over $30,000

Over $30,000 but 23%

not over $35,000

Over $35,000 but 22%

not over $40,000

Over $40,000 but 21%

not over $45,000

Over $45,000 but 20%

not over $50,000

Over $50,000 15%.]

equal to fifty per cent reduced by one percentage point for each $3,000, or fraction thereof, by which the taxpayer's adjusted gross income exceeds the threshold amount; provided that the applicable percentage shall not be reduced below twenty-five per cent.

(3) Threshold amount. For purposes of paragraph (2):

(A) For taxable years beginning after December 31, 2022, the threshold amount shall be $150,000; and

(B) For each taxable year beginning after December 31, 2023, the director, no later than December 15 of the preceding calendar year, shall recompute the threshold amount by multiplying the dollar amount for the preceding taxable year by the cost-of-living adjustment factor, if the cost-of-living adjustment factor is greater than zero, and rounding off the resulting product to the nearest $1. If the cost-of-living adjustment factor is less than or equal to zero in a given year, then no adjustment will occur in the following year.

(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, or

(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 such 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 household services, and

(ii) Expenses for the care of a qualifying individual.

Such 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 are incurred for services outside the taxpayer's household shall be taken into account only if incurred for the care of:

(i) A qualifying individual described in paragraph (1)(A), or

(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 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:

(i) Such center complies with all applicable laws, rules, and regulations of this State, if the center is located within the jurisdiction of this State; or

(ii) Such 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 State; and

(iii) 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 which:

(i) Provides care for more than six individuals (other than individuals who reside at the facility), and

(ii) Receives a fee, payment, or grant for providing services for any of the individuals (regardless of whether such facility is operated for profit).

(c) Dollar limit on amount creditable. The amount of the employment-related expenses incurred during any taxable year which may be taken into account under subsection (a) shall not exceed:

(1) [$2,400] $10,000 if there is one qualifying individual with respect to the taxpayer for such taxable year, or

(2) [$4,800] $20,000 if there are two or more qualifying individuals with respect to the taxpayer for such 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 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 year, such individual's earned income for such year, or

(B) In the case of an individual who is married at the close of such year, the lesser of such individual's earned income or the earned income of the individual's spouse for such 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 spouse shall be deemed for each month during which such 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, or

(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, and

(ii) Furnishes over half of the cost of maintaining the household during the taxable year, and

(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, and

(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 spouse, or

(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, or

(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) 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)] (g) Rules. The director of taxation shall prescribe such rules under chapter 91 as may be necessary to carry out the purposes of this section."

SECTION 4. Section 235-55.7, Hawaii Revised Statutes, is amended to read as follows:

"235-55.7 Income tax credit for [low-income] household renters. (a) As used in this section:

(1) "Adjusted gross income" [is defined by section 235-1.] means adjusted gross income as defined by the Internal Revenue Code.

(2) "Qualified exemption" includes those exemptions permitted under this chapter; provided that a person for whom exemption is claimed has physically resided in the State for more than nine months during the taxable year; and provided that multiple exemption shall not be granted because of deficiencies in vision, hearing, or other disability.

(3) "Rent" means the amount paid in cash in any taxable year for the occupancy of a dwelling place which is used by a resident taxpayer or the resident taxpayer's immediate family as the principal residence in this State. Rent is limited to the amount paid for the occupancy of the dwelling place only, and is exclusive of charges for utilities, parking stalls, storage of goods, yard services, furniture, furnishings, and the like. Rent shall not include any rental claimed as a deduction from gross income or adjusted gross income for income tax purposes, any ground rental paid for use of land only, and any rent allowance or subsidies received.

(b) Each resident taxpayer who occupies and pays rent for real property within the State as the resident taxpayer's residence or the residence of the resident taxpayer's immediate family [which is not partially or wholly exempted from real property tax,] who is not eligible to be claimed as a dependent for federal or state income taxes by another, and who files an individual net income tax return for a taxable year, may claim a tax credit under this section against the resident taxpayer's Hawaii state individual net income tax.

(c) Each taxpayer [with an adjusted gross income of less than $30,000] who has paid more than [$1,000] $10,000 in rent during the taxable year for which the credit is claimed may claim a household renters tax credit [of $50] as determined in subsection (d), multiplied by the number of qualified exemptions to which the taxpayer is entitled; provided that married couples shall file a joint return; provided further that each taxpayer sixty-five years of age or over may claim double the tax credit; [and] provided further that a resident individual who has no income or no income taxable under this chapter may also claim the tax credit as set forth in this section.

(d) The credit per exemption shall equal $350 reduced by the result of the reduction factor multiplied by each dollar for which the taxpayer's adjusted gross income exceeds the threshold amount, rounded to the nearest dollar; provided that the credit per exemption shall not be reduced below zero; provided further that:

(1) The reduction factor shall be:

(A) 0.007 for married persons filing a joint return or a surviving spouse;

(B) 0.0093 for heads of household; or

(C) 0.014 for single persons; and

(2) The threshold amount shall be:

(A) $40,000 for married persons filing a joint return or a surviving spouse;

(B) $30,000 for heads of household; or

(C) $20,000 for single persons.

(e) For each taxable year beginning after December 31, 2023, the director of taxation, no later than December 15 of the preceding calendar year, shall recompute the minimum rent amount in subsection (c) and threshold amount in subsection (d) by multiplying the dollar amount for the preceding taxable year by the cost-of-living adjustment factor, if the cost-of-living adjustment factor is greater than zero, and rounding off the resulting product to the nearest $1. If the cost-of-living adjustment factor is less than or equal to zero in a given year, then no adjustment will occur in the following year.

[(d)] (f) If a rental unit is occupied by two or more individuals, and more than one individual is able to qualify as a claimant, the claim for credit shall be based upon a pro rata share of the rent paid.

[(e)] (g) The tax credits shall be deductible from the taxpayer's individual net income tax for the tax year in which the credits are properly claimed[; provided that a husband and wife filing separate returns for a taxable year for which a joint return could have been made by them shall claim only the tax credits to which they would have been entitled had a joint return been filed]. In the event the allowed tax credits exceed the amount of the income tax payments due from the taxpayer, the excess of credits over payments due shall be refunded to the taxpayer; provided that allowed tax credits properly claimed by an individual who has no income tax liability shall be paid to the individual; and provided further that no refunds or payments on account of the tax credits allowed by this section shall be made for amounts less than $1.

(h) 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)] (i) The director of taxation shall prepare and prescribe the appropriate form or forms to be used herein, may require proof of the claim for tax credits, and may adopt rules pursuant to chapter 91.

[(g)] (j) All of the provisions relating to assessments and refunds under this chapter and under section 231-23(c)(1) shall apply to the tax credits hereunder.

[(h)] (k) Claims for tax credits under this section, including any amended claims thereof, shall be filed on or before the end of the twelfth month following the taxable year for which the credit may be claimed."

SECTION 5. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 6. This Act shall take effect on June 30, 3000, and shall apply to taxable years beginning after December 31, 2022.


 


 

Report Title:

Income Tax; Income Tax Credits; Teacher Expenses; Household and Dependent Care Services; Household Renters

 

Description:

Adds new tax credit for teacher's expenses. Adjusts annually for tax years beginning after December 31, 2023, the dependent care credit and household renters credit by a cost-of-living adjustment factor. Effective 6/30/3000. (HD2)

 

 

 

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