HB 1147: Income Tax; Earned Income Tax Credit

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.  Section 235-55.75, Hawaii Revised Statutes, is amended as follows:

     1.  By amending subsections (a) to (c) to read as follows:

     "(a)  Each qualifying individual taxpayer may claim a refundable earned income tax credit.  [The] Unless otherwise provided by law, the tax credit, for the appropriate taxable year, shall be forty 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[,] or a nonresident, 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] resident or nonresident individual 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."

2.  By amending subsection (g) to read as follows:

     "(g)  If nonrefundable credits claimed under this section for any of the four consecutive taxable years beginning after December 31, 2017, exceed the taxpayer's income tax liability for the original claim year, the excess of the tax credits over liability may be used as a credit against the taxpayer's net income tax liability in subsequent years until exhausted; provided that no credit carried forward under this subsection shall be used as a credit for a taxable year beginning after December 31, 2024.  No nonrefundable credits claimed for the taxable year beginning after December 31, 2021, and carried forward under this section, shall be used as a credit for a taxable year beginning after December 31, 2025."

     SECTION 2.  Statutory material to be repealed is bracketed and stricken.  New statutory material is underscored.

     SECTION 3.  This Act shall take effect on July 1, 3000; provided that this Act shall apply to taxable years beginning after December 31, 2024; provided further that the amendments made to section 235-55.75(a), Hawaii Revised Statutes, by this Act shall not be repealed when section 235-55.75(a), Hawaii Revised Statutes, is reenacted on December 31, 2027, pursuant to section 5 of Act 163, Session Laws of Hawaii 2023.

Report Title:

Income Tax; Earned Income Tax Credit

Description:

Clarifies that nonresidents who claim the state refundable earned income tax credit are required to adjust the amount claimed using the ratio of their Hawaii adjusted gross income to federal adjusted gross income.  Eliminates the unlimited carryforward on nonrefundable earned income tax credits claimed for tax year 2022.  Effective 7/1/3000.  (HD1)

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

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.  Section 235-55.75, Hawaii Revised Statutes, is amended as follows:

     1.  By amending subsections (a) to (c) to read as follows:

     "(a)  Each qualifying individual taxpayer may claim a refundable earned income tax credit.  [The] Unless otherwise provided by law, the tax credit, for the appropriate taxable year, shall be forty 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[,] or a nonresident, 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] resident or nonresident individual 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."

2.  By amending subsection (g) to read as follows:

     "(g)  If nonrefundable credits claimed under this section for any of the four consecutive taxable years beginning after December 31, 2017, exceed the taxpayer's income tax liability for the original claim year, the excess of the tax credits over liability may be used as a credit against the taxpayer's net income tax liability in subsequent years until exhausted; provided that no credit carried forward under this subsection shall be used as a credit for a taxable year beginning after December 31, 2024.  No nonrefundable credits claimed for the taxable year beginning after December 31, 2021, and carried forward under this section, shall be used as a credit for a taxable year beginning after December 31, 2025."

     SECTION 2.  Statutory material to be repealed is bracketed and stricken.  New statutory material is underscored.

     SECTION 3.  This Act, upon its approval, shall apply to taxable years beginning after December 31, 2024; provided that the amendments made to section 235-55.75(a), Hawaii Revised Statutes, by this Act shall not be repealed when section 235-55.75(a), Hawaii Revised Statutes, is reenacted on December 31, 2027, pursuant to section 5 of Act 163, Session Laws of Hawaii 2023.

Report Title:

Income Tax; Earned Income Tax Credit

Description:

Clarifies that nonresidents who claim the refundable earned income tax credit are required to adjust the amount claimed using the ratio of their Hawaii adjusted gross income to federal adjusted gross income.  Eliminates the unlimited carryforward on nonrefundable earned income tax credits for tax year 2022.

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

STAND. COM. REP. NO.  1000

Honolulu, Hawaii

                , 2025

RE:   H.B. No. 1147

      H.D. 1

Honorable Nadine K. Nakamura

Speaker, House of Representatives

Thirty-Third State Legislature

Regular Session of 2025

State of Hawaii

Madame:

     Your Committee on Finance, to which was referred H.B. No. 1147 entitled:

"A BILL FOR AN ACT RELATING TO THE EARNED INCOME TAX CREDIT,"

begs leave to report as follows:

     The purpose of this measure is to:

     (1)  Clarify that nonresidents who claim the Refundable Earned Income Tax Credit are required to adjust the amount claimed using the ratio of their Hawaii adjusted gross income to federal adjusted gross income; and

     (2)  Eliminate the unlimited carryforward on nonrefundable earned income tax credits claimed for tax year 2022.

     Your Committee received testimony in support of this measure from the Department of Taxation.  Your Committee received comments on this measure from the Tax Foundation of Hawaii.

     Your Committee finds that existing law requires the adjustment of the Refundable Earned Income Tax Credit for part-year residents to reflect their share of income attributable to the State but is silent in regard to nonresident claims.  This measure promotes tax equity by standardizing claims for the Refundable Earned Income Tax Credit for part-year residents and nonresidents.

     Your Committee has amended this measure by:

     (1)  Changing the effective date to July 1, 3000, to encourage further discussion; and

     (2)  Making technical, nonsubstantive amendments for the purposes of clarity, consistency, and style.

     As affirmed by the record of votes of the members of your Committee on Finance that is attached to this report, your Committee is in accord with the intent and purpose of H.B. No. 1147, as amended herein, and recommends that it pass Second Reading in the form attached hereto as H.B. No. 1147, H.D. 1, and be placed on the calendar for Third Reading.

Respectfully submitted on behalf of the members of the Committee on Finance,