Provides small business owners offering health care coverage to their employees and families by establishing a refundable tax credit for their contributions to their employees' health care benefits.

A BILL FOR AN ACT

SECTION 1. The legislature finds that providing health care coverage for employees and their families has become an increasing economic hardship to small businesses. To contain the cost of health care coverage, many small business owners have had to make the decision not to provide health care benefits to their employees. This causes financial hardship and places pressure on employees who have to pay for coverage entirely out-of-pocket or risk going without health care coverage.

As an incentive for small business owners who offer health care benefits to their employees and families, a refundable tax credit should be provided to offset the costs and substantially reduce the number of uninsured people in Hawaii.

The purpose of this Act is to increase the number of small business owners offering health care coverage to their employees and families by establishing a refundable tax credit for their contributions to their employees' health care benefits.

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

"§235-   Small business health benefits tax credit. (a) There shall be allowed to each eligible taxpayer subject to the taxes imposed by this chapter, a small business health benefits tax credit which shall be deductible from the taxpayer's net income tax liability, if any, imposed by this chapter for the taxable year in which the credit is properly claimed.

(b) The maximum amount of the credit shall be $75 per month per eligible employee, or fifty per cent of the total annual premium, whichever is less. The eligible taxpayer shall be allowed a credit up to a maximum total credit of $10,000 per taxable year.

(c) In the case of a partnership, S corporation, estate, or trust, the tax credit allowable is for health care coverage costs incurred by the entity for the taxable year. The cost upon which the tax credit is computed shall be determined at the entity level.

(d) The credit allowed under this section shall be claimed against the net income tax liability for the taxable year.

(e) If the tax credit under this section exceeds the taxpayer's net income tax liability, the excess credit over liability shall be refunded to the taxpayer; provided that no refund or payment on account of the tax credits allowed by this section shall be made for amounts less than $1. All claims for a tax credit under this section shall be filed on or before the end of the twelfth month following the close of 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.

(f) The tax credit allowed under this section shall be available for taxable years beginning after December 31, 2005.

(g) As used in this section:

"Eligible taxpayer" means a small business, defined as any individual or type of organization, including any partnership, association, trust, estate, joint stock company, insurance company, or corporation, whether domestic or foreign, a debtor in possession or receiver or trustee in bankruptcy, or the legal representative of a deceased person, that has more than two employees but less than fifty working a minimum of twenty hours per week, has not contributed to a health insurance premium on behalf of an employee in the previous two years, does not report a profit of more that $1,000,000, and has applied for a tax credit certificate prior to the effective date of its health insurance coverage.

"Employer" does not include:

"Health care coverage cost" means the costs incurred after December 31, 2005, by a small business to provide health insurance coverage to an employee or their family.

"Net income tax liability" means income tax liability reduced by all other credits allowed under this chapter."

SECTION 3. New statutory material is underscored.

SECTION 4. This Act, upon its approval, shall apply to taxable years beginning after December 31, 2005.