REPORT TITLE:
Income Tax Credit; Child Care


DESCRIPTION:
Allows married couples who file separately to claim child care
tax credit.

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                        
THE SENATE                              S.B. NO.           2034
TWENTIETH LEGISLATURE, 2000                                
STATE OF HAWAII                                            
                                                             
________________________________________________________________
________________________________________________________________


                   A  BILL  FOR  AN  ACT

RELATING TO THE INCOME TAX CREDIT FOR CHILD AND DEPENDENT CARE
   EXPENSES. 


BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

 1      SECTION 1.  The legislature finds that current state income
 
 2 tax law does not allow married taxpayers filing separate returns
 
 3 to claim the tax credit for child and dependent care expenses.
 
 4 The same is true for the Internal Revenue Code.  The unintended
 
 5 problem commonly arises when there is a spouse who works in
 
 6 Hawaii and the other spouse, while in Hawaii, maintains residence
 
 7 for tax purposes in another state.  The legislature further finds
 
 8 that married taxpayers who file separate state income tax returns
 
 9 should also be able to avail themselves of the tax credit as they
 
10 could have done by filing a joint return.
 
11      The purpose of this Act is to allow married taxpayers who
 
12 file separate returns to claim the income tax credit for child
 
13 and dependent care expenses.  For purposes of determining the
 
14 amount of adjusted gross income against which the credit is
 
15 computed, the incomes of both are added together, just as married
 
16 taxpayers, however the tax is not increased or imposed against
 
17 the separately filing taxpayer.   
 
18      SECTION 2.  Section 235-55.6, Hawaii Revised Statutes, is
 
19 amended by amending subsection (e) to read as follows:
 

 
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                                     S.B. NO.           2034
                                                        
                                                        

 
 1      "(e)  Special rules.  For purposes of this section:
 
 2      (1)  Maintaining household.  An individual shall be treated
 
 3           as maintaining a household for any period only if over
 
 4           half the cost of maintaining the household for the
 
 5           period is furnished by the individual (or, if the
 
 6           individual is married during the period, is furnished
 
 7           by the individual and the individual's spouse).
 
 8      (2)  [Married couples must file joint return.] Return
 
 9           filing.  If the taxpayer is married at the close of the
 
10           taxable year, the credit shall be allowed under
 
11           subsection (a) [only] if [the]:
 
12           (A)  The taxpayer and the taxpayer's spouse file a
 
13                joint return for the taxable year[.]; or
 
14           (B)  The taxpayer and the taxpayer's spouse file
 
15                separate returns; provided that the taxpayer shall
 
16                combine the spouse's Hawaii adjusted gross income
 
17                with the taxpayer's Hawaii adjusted gross income
 
18                to determine the taxpayer's adjusted gross income
 
19                for the purposes of subsection (a)(2).
 
20      (3)  Marital status.  An individual legally separated from
 
21           the individual's spouse under a decree of divorce or of
 
22           separate maintenance shall not be considered as
 
23           married.
 

 
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                                     S.B. NO.           2034
                                                        
                                                        

 
 1      (4)  Certain married individuals living apart.  If:
 
 2           (A)  An individual who is married and who files a
 
 3                separate return:
 
 4                (i)  Maintains as the individual's home a
 
 5                     household that constitutes for more than one-
 
 6                     half of the taxable year the principal place
 
 7                     of abode of a qualifying individual, and
 
 8               (ii)  Furnishes over half of the cost of
 
 9                     maintaining the household during the taxable
 
10                     year, and
 
11           (B)  During the last six months of the taxable year the
 
12                individual's spouse is not a member of the
 
13                household,
 
14           the individual shall not be considered as married.
 
15      (5)  Special dependency test in case of divorced parents,
 
16           etc.  If:
 
17           (A)  Paragraph (2) or (4) of section 152(e) of the
 
18                Internal Revenue Code of 1986, as amended, applies
 
19                to any child with respect to any calendar year,
 
20                and
 
21           (B)  The child is under age thirteen or is physically
 
22                or mentally incompetent of caring for the child's
 
23                self,
 

 
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                                     S.B. NO.           2034
                                                        
                                                        

 
 1           in the case of any taxable year beginning in the
 
 2           calendar year, the child shall be treated as a
 
 3           qualifying individual described in subsection (b)(1)(A)
 
 4           or (B) (whichever is appropriate) with respect to the
 
 5           custodial parent (within the meaning of section
 
 6           152(e)(1) of the Internal Revenue Code of 1986, as
 
 7           amended), and shall not be treated as a qualifying
 
 8           individual with respect to the noncustodial parent.
 
 9      (6)  Payments to related individuals.  No credit shall be
 
10           allowed under subsection (a) for any amount paid by the
 
11           taxpayer to an individual:
 
12           (A)  With respect to whom, for the taxable year, a
 
13                deduction under section 151(c) of the Internal
 
14                Revenue Code of 1986, as amended (relating to
 
15                deduction for personal exemptions for dependents)
 
16                is allowable either to the taxpayer or the
 
17                taxpayer's spouse, or
 
18           (B)  Who is a child of the taxpayer (within the meaning
 
19                of section 151(c)(3) of the Internal Revenue Code
 
20                of 1986, as amended) who has not attained the age
 
21                of nineteen at the close of the taxable year.
 
22           For purposes of this paragraph, the term "taxable year"
 
23           means the taxable year of the taxpayer in which the
 

 
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                                     S.B. NO.           2034
                                                        
                                                        

 
 1           service is performed.
 
 2      (7)  Student.  The term "student" means an individual who,
 
 3           during each of five calendar months during the taxable
 
 4           year, is a full-time student at an educational
 
 5           organization.
 
 6      (8)  Educational organization.  The term "educational
 
 7           organization" means a school operated by the department
 
 8           of education under chapter 302A, an educational
 
 9           organization described in section 170(b)(1)(A)(ii) of
 
10           the Internal Revenue Code of 1986, as amended, or a
 
11           university, college, or community college.
 
12      (9)  Identifying information required with respect to
 
13           service provider.  No credit shall be allowed under
 
14           subsection (a) for any amount paid to any person
 
15           unless:
 
16           (A)  The name, address, taxpayer identification number,
 
17                and general excise tax license number of the
 
18                person are included on the return claiming the
 
19                credit,
 
20           (B)  If the person is located outside the State, the
 
21                name, address, and taxpayer identification number,
 
22                if any, of the person and a statement indicating
 
23                that the service provider is located outside the
 

 
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                                     S.B. NO.           2034
                                                        
                                                        

 
 1                State and that the general excise tax license and,
 
 2                if applicable, the taxpayer identification numbers
 
 3                are not required, or
 
 4           (C)  If the person is an organization described in
 
 5                section 501(c)(3) of the Internal Revenue Code and
 
 6                exempt from tax under section 501(a) of the
 
 7                Internal Revenue Code, the name and address of the
 
 8                person are included on the return claiming the
 
 9                credit.
 
10           In the case of a failure to provide the information
 
11           required under the preceding sentence, the preceding
 
12           sentence shall not apply if it is shown that the
 
13           taxpayer exercised due diligence in attempting to
 
14           provide the information so required."
 
15      SECTION 3.  Statutory material to be repealed is bracketed.
 
16 New statutory material is underscored.
 
17      SECTION 4.  This Act, upon its approval, shall apply to
 
18 taxable years beginning after December 31, 1999.
 
19 
 
20                           INTRODUCED BY:  _______________________