§235-55.6  Expenses for household anddependent care services necessary for gainful employment.  (a)  Allowanceof credit.

(1)  In general.  For each resident taxpayer, whofiles an individual income tax return for a taxable year, and who is notclaimed or is not otherwise eligible to be claimed as a dependent by anothertaxpayer for federal or Hawaii state individual income tax purposes, whomaintains a household which includes as a member one or more qualifyingindividuals (as defined in subsection (b)(1)), there shall be allowed as acredit against the tax imposed by this chapter for the taxable year an amountequal to the applicable percentage of the employment-related expenses (asdefined in subsection (b)(2)) paid by such individual during the taxable year. If the tax credit claimed by a resident taxpayer exceeds the amount of incometax payment due from the resident taxpayer, the excess of the credit overpayments due shall be refunded to the resident taxpayer; provided that taxcredit properly claimed by a resident individual who has no income taxliability shall be paid to the resident individual; and provided further thatno refunds or payment on account of the tax credit allowed by this sectionshall be made for amounts less than $1.

(2)  Applicable percentage defined.  For purposes ofparagraph (1), the term "applicable percentage" means twenty-five percent reduced (but not below fifteen per cent) by one percentage point of each$2,000 (or fraction thereof) by which the taxpayer's adjusted gross income forthe taxable year exceeds $22,000.

(b)  Definitions of qualifying individual andemployment- related expenses.  For purposes of this section:

(1)  Qualifying individual.  The term "qualifyingindividual" means:

(A)  A dependent of the taxpayer who is underthe age of thirteen and with respect to whom the taxpayer is entitled to adeduction under section 235-54(a),

(B)  A dependent of the taxpayer who isphysically or mentally incapable of caring for oneself, or

(C)  The spouse of the taxpayer, if the spouseis physically or mentally incapable of caring for oneself.

(2)  Employment-related expenses.

(A)  In general.  The term"employment-related expenses" means amounts paid for the followingexpenses, but only if such expenses are incurred to enable the taxpayer to begainfully employed for any period for which there are one or more qualifyingindividuals with respect to the taxpayer:

(i)  Expenses for household services, and

(ii)  Expenses for the care of a qualifyingindividual.

Such term shall not include anyamount paid for services outside the taxpayer's household at a camp where thequalifying individual stays overnight.

(B)  Exception.  Employment-related expensesdescribed in subparagraph (A) which are incurred for services outside thetaxpayer's household shall be taken into account only if incurred for the careof:

(i)  A qualifying individual described inparagraph (1)(A), or

(ii)  A qualifying individual (not described inparagraph (1)(A)) who regularly spends at least eight hours each day in thetaxpayer's household.

(C)  Dependent care centers. Employment-related expenses described in subparagraph (A) which are incurredfor services provided outside the taxpayer's household by a dependent carecenter (as defined in subparagraph (D)) shall be taken into account only if:

(i)  Such center complies with all applicablelaws, rules, and regulations of this State, if the center is located within thejurisdiction of this State; or

(ii)  Such center complies with all applicablelaws, rules, and regulations of the jurisdiction in which the center islocated, if the center is located outside the State; and

(iii)  The requirements of subparagraph (B) aremet.

(D)  Dependent care center defined.  Forpurposes of this paragraph, the term "dependent care center" meansany facility which:

(i)  Provides care for more than six individuals(other than individuals who reside at the facility), and

(ii)  Receives a fee, payment, or grant forproviding services for any of the individuals (regardless of whether suchfacility is operated for profit).

(c)  Dollar limit on amount creditable.  Theamount of the employment-related expenses incurred during any taxable yearwhich may be taken into account under subsection (a) shall not exceed:

(1)  $2,400 if there is one qualifying individual withrespect to the taxpayer for such taxable year, or

(2)  $4,800 if there are two or more qualifyingindividuals with respect to the taxpayer for such taxable year.

The amount determined under paragraph (1) or (2)(whichever is applicable) shall be reduced by the aggregate amount excludablefrom gross income under section 129 (with respect to dependent care assistanceprograms) of the Internal Revenue Code for the taxable year.

(d)  Earned income limitation.

(1)  In general.  Except as otherwise provided in thissubsection, the amount of the employment-related expenses incurred during anytaxable year which may be taken into account under subsection (a) shall notexceed:

(A)  In the case of an individual who is notmarried at the close of such year, such individual's earned income for suchyear, or

(B)  In the case of an individual who ismarried at the close of such year, the lesser of such individual's earnedincome or the earned income of the individual's spouse for such year.

(2)  Special rule for spouse who is a student orincapable of caring for oneself.  In the case of a spouse who is a student or aqualified individual described in subsection (b)(1)(C), for purposes ofparagraph (1), such spouse shall be deemed for each month during which suchspouse is a full-time student at an educational institution, or is such aqualifying individual, to be gainfully employed and to have earned income ofnot less than:

(A)  $200 if subsection (c)(1) applies for thetaxable year, or

(B)  $400 if subsection (c)(2) applies for thetaxable year.

In the case of any husband and wife, thisparagraph shall apply with respect to only one spouse for any one month.

(e)  Special rules.  For purposes of thissection:

(1)  Maintaining household.  An individual shall betreated as maintaining a household for any period only if over half the cost ofmaintaining the household for the period is furnished by the individual (or, ifthe individual is married during the period, is furnished by the individual andthe individual's spouse).

(2)  Married couples must file joint return.  If thetaxpayer is married at the close of the taxable year, the credit shall beallowed under subsection (a) only if the taxpayer and the taxpayer's spousefile a joint return for the taxable year.

(3)  Marital status.  An individual legally separatedfrom the individual's spouse under a decree of divorce or of separatemaintenance shall not be considered as married.

(4)  Certain married individuals living apart.  If:

(A)  An individual who is married and who filesa separate return:

(i)  Maintains as the individual's home ahousehold that constitutes for more than one- half of the taxable year theprincipal place of abode of a qualifying individual, and

(ii)  Furnishes over half of the cost ofmaintaining the household during the taxable year, and

(B)  During the last six months of the taxableyear the individual's spouse is not a member of the household,

the individual shall not be considered asmarried.

(5)  Special dependency test in case of divorcedparents, etc.  If:

(A)  Paragraph (2) or (4) of section 152(e) ofthe Internal Revenue Code of 1986, as amended, applies to any child withrespect to any calendar year, and

(B)  The child is under age thirteen or isphysically or mentally incompetent of caring for the child's self,

in the case of any taxable year beginning inthe calendar year, the child shall be treated as a qualifying individualdescribed in subsection (b)(1)(A) or (B) (whichever is appropriate) withrespect to the custodial parent (within the meaning of section 152(e)(1) of theInternal Revenue Code of 1986, as amended), and shall not be treated as aqualifying individual with respect to the noncustodial parent.

(6)  Payments to related individuals.  No credit shallbe allowed under subsection (a) for any amount paid by the taxpayer to anindividual:

(A)  With respect to whom, for the taxableyear, a deduction under section 151(c) of the Internal Revenue Code of 1986, asamended (relating to deduction for personal exemptions for dependents) isallowable either to the taxpayer or the taxpayer's spouse, or

(B)  Who is a child of the taxpayer (within themeaning of section 151(c)(3) of the Internal Revenue Code of 1986, as amended)who has not attained the age of nineteen at the close of the taxable year.

For purposes of this paragraph, the term"taxable year" means the taxable year of the taxpayer in which theservice is performed.

(7)  Student.  The term "student" means anindividual who, during each of five calendar months during the taxable year, isa full-time student at an educational organization.

(8)  Educational organization.  The term"educational organization" means a school operated by the departmentof education under chapter 302A, an educational organization described insection 170(b)(1)(A)(ii) of the Internal Revenue Code of 1986, as amended, or auniversity, college, or community college.

(9)  Identifying information required with respect toservice provider.  No credit shall be allowed under subsection (a) for anyamount paid to any person unless:

(A)  The name, address, taxpayer identificationnumber, and general excise tax license number of the person are included on thereturn claiming the credit,

(B)  If the person is located outside theState, the name, address, and taxpayer identification number, if any, of theperson and a statement indicating that the service provider is located outsidethe State and that the general excise tax license and, if applicable, thetaxpayer identification numbers are not required, or

(C)  If the person is an organization describedin section 501(c)(3) of the Internal Revenue Code and exempt from tax undersection 501(a) of the Internal Revenue Code, the name and address of the personare included on the return claiming the credit.

In the case of a failure to provide theinformation required under the preceding sentence, the preceding sentence shallnot apply if it is shown that the taxpayer exercised due diligence in attemptingto provide the information so required.

(f)  Rules.  The director of taxation shallprescribe such rules under chapter 91 as may be necessary to carry out thepurposes of this section. [L 1977, c 196, §2; am L 1979, c 62, §2(10); am L1981, c 234, §1; am L 1982, c 25, §3; am L 1985, c 19, §2; gen ch 1985; am L1987, c 239, §1(16); am L 1988, c 102, §4; am L 1989, c 13, §5, c 321, §4, andc 322, §1; am L 1993, c 73, §§2, 3; am L 1996, c 89, §10]