2023 Session: Tax Credits for Working Families

The Problem

Nearly half of children in Hawai‘i live in households experiencing financial hardship. 

While almost 1 in 8 are in poverty, an additional one-third of families in Hawaii aren’t officially poor but still don’t earn enough to afford the basic life essentials.

Many working-age families are choosing to move to the mainland because of the high cost of living here.

There are a number of social services to support struggling families in poverty, but working class families above poverty who still can’t afford the basics often don’t qualify for public benefits.

That’s where tax credits come in. They help people keep more of their hard-earned money, and when targeted for lower- to middle-income families, help reduce financial hardship.


Child and Dependent Care Tax Credit (CDCTC)

The cost of full-time child care in Hawai'i has skyrocketed. Accordingly, we need to increase the income tax credits allowed for expenses for child and dependent care services to ensure that these credits reflect the economic reality of working families. 

The CDCTC is currently capped at 25% of care expenses and $2,400 for one child/dependent or $4,800 for two children/dependents. And it phases out as incomes rise.

With the average cost of child care in Hawaiʻi exceeding $13,000 per year, families need more support. There are bills at the legislature this session (HB954HB1049 / SB1347that would expand the reach of the CDCTC to more families, increase the portion of care expenses that they can claim, and more than double how much they can get – up to $5,000 per child. 

Helping families afford to enroll their keiki in child care programs also reaps benefits for their parents and our community in other ways:

  • Full-time child care programs allow parents to obtain stable employment, which increases the economic well-being of the family as a whole. 
  • Additionally, early learning programs facilitate the academic and social development of young children and should be supported. Research on the benefits of quality early learning programs indicates that for every $1 invested in such opportunities, society saves $4 to $8 on remedial classes, special education, welfare programs, and criminal justice costs.


Earned Income Tax Credit (EITC)

The Earned Income Tax Credit (EITC) is a special tax credit for families that work. This credit helps them keep more of what they earn. It is designed to provide the greatest help to working families with children who earn low- to moderate-incomes. The amount of the credit goes up when a family has more children and phases out as income rises.


How does the EITC help people and businesses in Hawaii?

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.

Hawaii’s EITC is based on the federal EITC, which has been considered one of the most effective anti-poverty tools in our nation for over 40 years. Research on the federal EITC has found that it leads to:

  • Better health through improved birth outcomes and greater food security
  • Greater educational achievement, as evidenced by higher high school graduation rates and increased college enrollment
  • Higher earnings as adults among kids who grew up in families that received the EITC
  • Boosted economic growth, as $1 in EITC benefits creates about $1.24 in local economic activity


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 here. (By contrast, the wealthiest earners pay only 9% of their abundant incomes.) When you are barely making ends meet, that 15% doesn’t leave a whole lot leftover. The EITC 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.


We want working families to get a bigger tax refund with the EITC.

Passed: HB954!

It’s tough to make ends meet in Hawaiʻi. There are bills at the legislature this session (HB954 / HB1049 / SB1347) that would increase the state EITC from 20% to 30% of a family’s federal EITC.

For example, a single mom in Hawaii with 2 kids who works full time at the minimum wage makes almost $25,000 per year. She qualifies for a federal EITC of $5,148. Her current state EITC, set at 20% of the federal, is $1,030. The proposed bills would increase her EITC to 30%, or $1,544 – that’s an additional $514 to help her make ends meet.

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