Lots of Hawaii Taxpayers miss the Hawaii Refundable Food/Excise Tax Credit when they prepare their state tax return. Here’s how to claim the credit!
Warning: The tax advice given here is very general in nature and may not apply to your tax situation. Please read the appropriate instructions carefully before filling out tax forms or hire a professional tax preparer to help you.
The Hawaii Refundable Food/Excise Tax Credit
Hawaii imposes a general excise tax on nearly everything. For state legislators, this is a simple (and profitable) solution to complex state sales tax laws. The problem with this, however, is that food is not exempt from GE taxation. The average Hawaii resident has to deal with both expensive food prices and the General Excise Tax on the food too.
Fortunately, Hawaii tax policy makers developed the Hawaii Refundable Food/Excise Tax Credit to provide relief to low and middle income earners who have to bear this expense.
Updates on the Credit
In 2015, Hawaii Governor David Ige signed an increase on the amounts of the credit into law.
The new rules targeted tax returns with income of less than $30,000 per year (or $50,000 per year if you are married or a single parent claiming “head of household status” on your tax return).
The increases are $10 to $25, depending on how much you earn and your filing status.
The result of this policy change creates a shift on how the credit is distributed. If you are filing under “single” or “married filing separate” filing status and you earn more than $30,000 but less than $50,000, then you no longer get the credit.
Another interesting change to the food tax credit is that the wording of the tax code was changed to remove the language of residency requirements. We’re not sure that this means very much, however, as the code states that you must be present in Hawaii for nine months out of the year.
Looking separately at the instructions for filing your income taxes (Form N11 and N15 Instructions), those say that if you are present in Hawaii for more than 200 days of the year, that you are pretty much taxed as a resident (with some exceptions). It does not seem that there would be many taxpayers that filed non-Hawaii Residents that could still claim the excise tax food credit.
These changes seem great on the surface, but they have been criticized by many political opponents of the bill. In the news headlines, the changes make it seem that our policy makers are creating a “better system to help lower-middle class families”, and as if “they are opening up the budget to help those in this demographic”.
Many critics have complained, however, that while these changes look good on the surface, these changes actually make the government more in revenue in the long run. It takes over a hundred dollars from those earning $35,000, for one example, and it gives $10 to $25 of that to those earning $25,000.
Critics have voiced that the people would be better served by solving these problems first – instead funding projects like HART – which is costing each and every taxpayer thousands of dollars per person.
So Who Gets the Hawaii Food Tax Credit?
Nearly every full time resident of Hawaii who files a tax return, is not a dependent, and earns less than $50,000 per year (updated to $30,000 for those filing “single” or “married filing separately”), is eligible. The less you make the more you get in credit, and you can claim more credit for some additional dependents as well. Even if you have no taxable income you can still claim the credit in many cases.
Note that if you can be claimed as a dependent, but no one claims you, you cannot take the credit.
There are a few more rules involved – such as that “you can’t be incarcerated for the entire year”, etc. These rules change at a dynamic pace and it does not make sense to list them all in this guide. If you are doing your taxes on your own, please research the rules on taking the credit before claiming it. This is a very general review of the food credit and it does not replace the official published rules or your responsibility to abide by them. Instructions can be found here, but always check to see that you are using the most current revision of the instructions.
Of course, we always recommend that you have a professional prepare and file your taxes, as they will be up on all of the latest rules involved with claiming the food tax credit. You can contact us here.
It’s a Refundable Credit
The Hawaii Refundable Food/Excise Tax Credit is refundable. The terms “refundable tax credit” and “non-refundable tax credit” are perhaps the most misunderstood tax terms.
All you really need to know about this concerning the food excise tax credit is that even if you have no tax liability, they will still give you the credit.
If you want to know more about refundable credits vs. non refundable credits, we intend to write about it soon.
How to Claim It
To claim the food tax credit you must fill out Hawaii Tax Schedule X and include it with your Form N11 Hawaii State tax return.
Part 1 of this form is all about the food credit. Fill out part 1 of Schedule X “line by line” and carefully read the instructions. The form will instruct you on how to compute your credit and where the final number is transferred to the main Hawaii Tax Return form.
Note that you must file a tax return to claim the credit.
You must be eligible and you cannot be claimed as a dependent of another.
If you would like our assistance in claiming the credit, you would have to be eligible to file a Hawaii Income tax return and then hire us to file your taxes.
The Hawaii Excise Tax Food Credit Expires After the Current Year
With some exceptions, like being off-island while deployed, you must claim the credit in the current filing year before the due date of your tax return. Prior-year tax returns do not qualify for the credit. In other words, if you are filing your tax returns late, in most cases you cannot claim the credit.
It is not too uncommon to see many taxpayers filing two or three back (overdue) years all at once to catch up on their filings. In these cases, these late filers miss out on the food excise tax credit for every year but the most recent.
The Hawaii Department of Taxation is pretty good at catching those who are too late but mistakenly try to claim the credit anyway, and they will adjust your tax return (and thus your refund or tax balance) and send you a letter of adjustment. This could actually delay your refund in which you were otherwise entitled.
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