SB2746

SECTION 1. The legislature finds that Hawaii faces unique geographical challenges that limit access to specialized medical care, requiring many residents to travel to other islands or outside the State for essential medical services. The high costs associated with medical travel, including airfare, lodging, transportation, and meals, impose a significant financial burden on individuals and families, particularly those from rural or underserved areas. These expenses disproportionately affect vulnerable populations, including seniors, low-income residents, and those with chronic conditions, further exacerbating health inequities in the State.

The legislature also finds that access to timely and appropriate healthcare is a fundamental right and is essential for improving public health outcomes and reducing long-term healthcare costs. Existing federal tax deductions may not fully alleviate the financial burden on Hawaii residents due to the limitations on eligibility and coverage under current tax laws. The legislature further finds that a state income tax credit for medical travel expenses would provide targeted relief, help to ensure equitable access to healthcare, and strengthen the overall well-being of Hawaii's communities by reducing the financial burdens and barriers to care.

Accordingly, the purpose of this Act is to establish an income tax credit for medical travel expenses incurred by residents to alleviate financial hardships, improve access to critical healthcare services, and promote healthier medical outcomes for residents across the State.

SECTION 2. Chapter 235, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:

"§235- Income tax credit; medical travel expenses. (a) Each qualified taxpayer who is not eligible to be claimed by another as a dependent for federal or state income taxes, and who files an individual net income tax return for a taxable year, may claim a tax credit under this section against the resident taxpayer's Hawaii state individual net income tax, subject to the requirements of this section.

(b) The amount of the tax credit shall be equal to:

(1) For a taxpayer whose household income does not exceed three hundred per cent of the area median income, one hundred per cent of the qualified expenses incurred during the taxable year, up to a maximum of:

(A) For a taxpayer filing a single return or a married person filing separately, $2,500;

(B) For a taxpayer filing as a head of household, $3,750; and

(2) For a taxpayer whose household income is more than three hundred per cent but does not exceed five hundred per cent of the area median income, fifty per cent of the qualified expenses incurred during the taxable year, up to a maximum of:

(A) For a taxpayer filing a single return or a married person filing separately, $2,500;

(B) For a taxpayer filing as a head of household, $3,750; and

(3) For a taxpayer whose household income exceeds, five hundred per cent of the area median income, $0.

(c) Every qualified taxpayer, before March 31 of each year in which qualified expenses were incurred by the taxpayer in the previous taxable year, shall submit to the department of business, economic development, and tourism:

(1) A copy of the licensed health care provider's certificate of medical necessity;

(2) A written, certified statement identifying qualified expenses incurred in the previous taxable year and copies of any supporting documentation required by the department of business, economic development, and tourism; and

(3) The amount of the tax credit claimed by the taxpayer pursuant to this section, if any, in the previous taxable year.

A qualified taxpayer shall maintain all documentation in support of each submission to the department of business, economic development, and tourism for a period of not less than six years, and shall furnish the records to the department of business, economic development, and tourism upon request.

(d) The department of business, economic development, and tourism shall:

(1) Maintain records of the names and addresses of the qualified taxpayers claiming the credits under this section and the total amount of the qualified expenses upon which the tax credits are based;

(2) Verify the nature and amount of the qualified expenses;

(3) Total all qualified and cumulative expenses that the department certifies; and

(4) Certify the amount of the tax credit for each taxpayer for each taxable year and the cumulative amount of the tax credit.

Upon each determination made under this subsection, the department of business, economic development, and tourism shall issue a certificate to the taxpayer verifying information submitted to the department of business, economic development, and tourism, including amounts of qualified expenses, the credit amount certified for the taxpayer for each taxable year, and the cumulative amount of tax credits certified. The taxpayer shall file the certificate with the taxpayer's tax return with the department of taxation. The director of taxation may audit and adjust the certification to conform to the facts.

The department of business, economic development, and tourism may assess and collect a fee to offset the costs of certifying tax credit claims under this section.

(e) The tax credit under this section shall be deductible from the taxpayer's individual net income tax for the tax year in which the credit is properly claimed; provided that spouses filing separate returns for a taxable year for which a joint return could have been made by the spouses shall claim only the tax credit to which they would have been entitled had a joint return been filed. If the allowed tax credit exceeds the amount of the income tax payments due from the taxpayer, the excess of the credit over liability may be used as a credit against the taxpayer's income tax liability in subsequent years until exhausted.

(f) All of the provisions relating to assessments and refunds under this chapter and under section 231-23(c)(1) shall apply to the tax credits hereunder.

(g) A claim for a tax credit under this section, including any amended claim thereof, shall be filed on or before the end of the twelfth month following the taxable year for which the credit may be claimed. Failure to comply with the foregoing provision shall constitute a waiver of the right to claim the credit.

(h) The director of taxation:

(1) Shall prepare any forms that may be necessary to claim a tax credit under this section;

(2) May require the taxpayer to furnish reasonable information to ascertain the validity of the claim for the tax credit made under this section; and

(3) May adopt rules under chapter 91 necessary to effectuate the purposes of this section.

(i) The department of taxation, in consultation with the department of business, economic development, and tourism, shall prepare an annual report to the legislature that includes:

(1) The number of taxpayers claiming the credit, disaggregated by income tier, county of residence, and whether medical care was obtained within or outside the State;

(2) The aggregate amount of expenses claimed, aggregate credit amounts allowed, and the average credit per claimant;

(3) An estimate of the fiscal impact of the credit and any measurable effects on patient access to care or other health-outcome metrics;

(4) The demographic distribution of claimants, including age groups, household size, and whether the patient was an adult or minor; and

(5) Any findings and recommendations, including any proposed legislation, for any changes to the program.

(j) For the purposes of this section:

"Caregiver" means one person designated by the patient, or the patient's legal guardian, to accompany the patient during the medically required travel and treatment period.

"Dependent" has the same meaning as in section 152 of the Internal Revenue Code, determined without regard to subsections (b)(1), (b)(2), and (d)(1)(B) thereof.

"Medical care" has the same meaning as in sections 213(d)(1)(A) and 213(d)(9) of the Internal Revenue Code.

"Medically required incidentals" means expenses directly related to the treatment of the patient, but not otherwise reimbursed by insurance or another payer, including special dietary needs during travel and physician-ordered medical supplies or equipment for use during travel.

"Patient" means a taxpayer, or a dependent of the taxpayer, who must travel from the taxpayer's primary residence in Hawaii to another location in or outside the State in order to receive medical care that the treating physician certifies is medically necessary and not reasonably available within the State or the patient's county of residence.

"Qualified expenses" means travel expenses not covered by insurance incurred by a patient and one accompanying caregiver to obtain medical care, including:

(1) Airfare;

(2) Lodging;

(3) Ground transportation;

(4) Medically required incidentals; and

(5) Parking fees incurred at or near the treatment location.

"Qualified taxpayer" means a taxpayer who incurred qualified expenses during the taxable year for which the credit is claimed; provided that:

(1) The taxpayer or the taxpayer's dependent has received certification of medical necessity from a physician, physician assistant, or advanced practice registered nurse licensed to practice in the State, acting within the scope of their practice, which states that the patient's travel is required because treatment is not reasonably available in the State or the patient's county of residence and could not reasonably be delayed without risk to the patient's health;

(2) The patient's travel and treatment occurred during the taxable year for which the credit is claimed; and

(3) The income of the taxpayer's household does not exceed five hundred per cent of the area median income."

SECTION 3. This Act does not affect rights and duties that matured, penalties that were incurred, and proceedings that were begun before its effective date.

SECTION 4. New statutory material is underscored.

SECTION 5. This Act shall take effect upon its approval; provided that:

(1) This Act shall apply to taxable years beginning after December 31, 2025; and

(2) This Act shall be repealed on January 1, 2031.

INTRODUCED BY:	_____________________________

THE SENATE	S.B. NO.	2746
THIRTY-THIRD LEGISLATURE, 2026
STATE OF HAWAII