State Earned Income Tax Credit

The Earned Income Tax Credit is a federal tax credit that helps families work their way into the middle class. Since its inception in 1975, the federal EITC has been hailed as the most effective anti-poverty program in the U.S., improving the futures of low- and moderate-income workers and that of their communities.

Twenty-six states and the District of Columbia offer a state EITC to help families keep more of their earnings. The credit has been championed by families and businesses alike in these states because it gives a much-needed break to working families struggling to get by on low wages, and boosts local economies across the state. Now is the time for Hawai‘i to invest in its residents and businesses by creating a state refundable EITC that puts dollars back into workers’ pockets and into the cash registers of local business.

To read our report on the far-reaching benefits of creating a state EITC, click here.

Download on talking points on the state EITC here.

How the EITC works

The EITC is a refundable tax credit that can only be claimed by people with earned income. The credit amount is determined by the filer’s income and family size and phases out as income increases.

With the extremely high cost of living in Hawai‘i, working low-income households face a daunting struggle to make ends meet, which is made even more difficult by our regressive tax system:

  • Hawai‘i has the highest cost of living in the United States, at almost 70% more than the national average.
  • Our residents earn the lowest wages in the country when adjusted for the cost of living, while the tax rate for low-income households is among the highest in the nation.
  • Hawai‘i’s tax structure is one of the most regressive in the country: Our poorest taxpayers pay the largest share of income in taxes, at more than 13%, while those earning more than $375,000 pay the lowest share of income in taxes at only 7%. The lowest earners pay almost twice as much as the wealthiest.

Earned Income Tax Credit

  • Only households with earned income can receive the EITC: The federal EITC provides financial relief to low-income workers through a targeted tax reduction. The EITC gets and keeps people working by supplementing the wages of low-income workers, targeting those with families.
  • A targeted, efficient and cost-effective program: A state EITC is easy to administer and goes directly into the pockets of families. Because it is administered through the existing tax system, it reduces administrative costs and inefficiencies compared to other government programs.
  • Over the 38 years since its inception, the federal EITC has helped millions of families stay out of poverty in our country.

Proposed State EITC Program

  • A Hawai‘i state EITC would create a state income tax credit set at a percentage of the federal EITC. Twenty-six other states and the District of Columbia have EITCs.
  • Because the EITC is targeted at families, the credit is particularly effective at alleviating the impact of child poverty. Approximately 18,000 children in Hawai‘i were kept out of poverty due to the federal EITC each year between 2011-2013; a state EITC would further bolster working families’ incomes.
  • The tax credit lets low- and moderate- income working families keep more of what they earn to help meet basic needs and pay for things that allow them to keep working, such as child care and transportation, and that boosts the local economy.

A 10% state refundable EITC would help 309,060 people – including 127,018 children –and put close to $24 million into the state economy.