HRS § 235-55.6 — Expenses for household and dependent care services necessary for gainful employment


§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%.
(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) [Repeal and
reenactment on December 31, 2027. L 2023, c 163, §5.] 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) $10,000 if there is one qualifying individual
with respect to the taxpayer for such taxable year, or
(2) $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) Rules. The director of taxation shall
prescribe such rules under chapter 91 as may be necessary to carry out the
purposes of this section.