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Improving the Earned Income Tax Credit

The Earned Income Tax Credit (EITC) is a special tax credit for families that work. It has the greatest impact for families with children.

It’s been helping people for the past four years, but the families who need it the most still can’t access its full benefits. And all families that benefit from it today are at risk of losing it. If it’s not extended, this could be the last year to claim it.

It’s tough to make ends meet in Hawaiʻi. We want working families to have a bigger tax refund.

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Want to know even more about the EITC? Click here for our information for advocates and policymakers.

Q&A

Why is the EITC ending?
The Legislature wanted to see if it would help people, and the evidence says it does.

How has it helped people?
There’s a lot of evidence that ensuring families have enough to cover their basics is good for their kids, their communities and the economy as a whole. The evidence shows that this investment helps kids from before they’re even born through their adult lives. It improves their physical and mental health by freeing up money for families to spend on healthcare and healthy food. It improves education results, which has economic benefits down the road.

How many people would be impacted?
There are around 300,000 Hawaii residents who qualify for this tax credit, or 1 in 4 residents. We want to make sure that every one who does qualify for the credit is able to fully take advantage of it. That’s why we want to make it permanent and expand it.

What does “expand” actually mean?
Low-income families work just as hard as everyone else, but because they work low-wage jobs, their incomes are too small to take advantage of the full size of the EITC. These families deserve to be able to claim the full size of the credit, just like everyone else. This concept is called “refundability.”

Why do working families need to have a special credit?
Working families pay 15% of their incomes in state and local taxes; incomes that are already deeply strained by the high cost of living. (By contrast, the wealthiest earners pay only 8.9% of their abundant incomes.) When you are barely making ends meet, that 15% doesn’t leave a whole lot leftover. This is a great way to help working families keep more of what they’ve earned through their hard work and boost the economy at the same time.

How much would this proposal cost the state?
It would cost $41 million, but it would also boost revenue collections by $57 million, so it pays for itself and then some.

Do you have any data on how this might impact racial equity in Hawaiʻi?
Native Hawaiians and other Pacific Islanders would benefit the most from this expansion. Why is that? First, they tend to be paid less for their work, so they have smaller incomes and with the expansion will therefore benefit the most. But beyond that, this speaks to larger issues of systemic racism and the ongoing effects of colonialism. We see this program as a positive step toward addressing some of that harm.