Hawaii Earned Income Tax Credit

Hawaii has its own Earned Income Tax Credit that puts money back in the pockets of working families. It equals 40 percent of the federal earned income credit you claim on your federal return. You figure it on Form N-356 by taking your federal credit and multiplying by 40 percent.

The most important update is this: the Hawaii credit is now refundable. Form N-356 has a part titled Refundable Tax Credit Computation. That means if the credit is larger than the Hawaii tax you owe, you can get the difference back as a refund. An older claim that it is a nonrefundable 20 percent credit is out of date.

To claim it, you must qualify for the federal credit first. You have to file a federal return and claim the federal earned income credit for the year, and use the same filing status on your Hawaii return as on your federal one. If you do not qualify for the federal credit, you cannot claim the Hawaii one.

Residents and part-year filers are treated a bit differently. Full-year Hawaii residents use a ratio of 1.00 and take the full 40 percent amount. Part-year residents and nonresidents prorate the credit by their Hawaii-source income.

You claim the credit by filing Form N-356 with your Hawaii income tax return, Form N-11 for residents or N-15 for part-year and nonresidents, and entering the amount on Schedule CR. Because the credit changed to refundable, older unused credits from tax years 2018 through 2021 can no longer be carried forward.

The value depends entirely on your federal credit, since it is 40 percent of that amount. File a Hawaii return even if your income is low enough that you are not required to, or the credit goes unclaimed. Free tax help sites can prepare both returns at no cost.