February 20, 2020

Hawai’i Budget and Policy Center: Hawai’i’s Earned Income Tax Credit: Next Steps

ITEP Work in Action

In 2017, Hawaiʻi passed legislation to create a state EITC.11 The new law allowed qualified taxpayers to claim a state tax credit beginning in 2018. The state tax credit amounts to 20 percent of the federal EITC but, unlike its federal counterpart, Hawaiʻi’s tax credit is not refundable. That is, if the filer owes less in taxes than the credit is worth, the state does not refund the difference to the
taxpayer but carries it over to the following year, when it may not be useful either. This flaw reduces the overall value of the tax credit by nearly half. The Institute on Taxation and Economic Policy (ITEP) estimated that for 2020, the state’s nonrefundable tax credit would provide $18.7 million in tax relief for low- to moderate-income Hawaiʻi families. A refundable tax credit would add an
additional $18.3 million in benefits for these struggling families. Applying Mark Zandi’s economic multiplier ($1.24 in total benefits for $1 spent on EITC), a refundable Hawaiʻi EITC would add $22.7 million in community benefits.

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