Hawaii unemployment compensation tax exemption bill advances

A proposal to exempt unemployment compensation from state income taxes won a key approval on Thursday with the Senate Ways and Means Committee unanimously approving the measure.

The exemption would apply to unemployment compensation, including Pandemic Unemployment Assistance, received by Hawaii residents between March 1 and December 31 when the coronavirus pandemic caused widespread economic devastation. Unemployed workers who had state income taxes withheld from their unemployment checks would be able to have the amount credited against their overall state tax liability for 2020.

Hawaii taxpayers who have already filed their 2020 returns would have to file an amended return in order to recoup the payments.

Senate Bill 614 received overwhelming support from local labor unions and dozens of residents who submitted written testimony describing the economic hardships they’ve faced this year as businesses and schools shuttered and tourism was decimated.

More than 580,500 Hawaii workers filed unemployment claims in 2020, about half of the state’s working population.

“Most workers have lost their health insurance, many are on the verge of eviction and many are struggling to provide for their families,” wrote the International Longshore and Warehouse Union, Local 142, in testimony urging lawmakers to pass the bill. The union said the extra money could help workers feed their families and stimulate the economy.

Hawaii fully taxes unemployment compensation, which may be a surprise for some residents who are now finding that they owe the state taxes on that assistance. Some states, such as California and Pennsylvania, have permanently exempted unemployment insurance from state income taxes, while states such as Maryland and Delaware have exempted the benefits from 2020 taxes because of the pandemic.

The Hawaii Workers Center, which assists un­employed and low-wage workers, and immigrants, said the extra money was desperately needed by residents struggling to stay afloat financially, especially since thousands are still struggling to obtain benefits from the state’s labor office which is swamped by jobless claims.

Amid the financial difficulties, “tuition still needs to be paid, groceries still need to be bought, teeth still need to be checked on, cars still need to be repaired,” wrote the center.

Despite the support, it’s not clear how the state will make up for the estimated $190 million hit the bill is expected to have on the state’s operating budget in the 2021 fiscal year. The decrease was not accounted for in the budget that Gov. David Ige submitted to the Legislature this year, which means legislators will have to find ways to plug the hole.

The bill still needs a full vote in the Senate and approvals in the House of Representatives before it can be sent to the governor for decision making.