SB 2920 is the Department of Taxation’s annual bill specifying how Hawaii income tax does, or does not, track changes in the federal tax code. We anticipate that the Governor will sign it.
Provisions of interest include:
- Stimulus payments. Stimulus payments from the federal government will not be included in gross income subject to income tax, same as under federal law.
- PPP Loan Forgiveness. Although loan forgiveness is normally treated as income subject to tax, federal law provides that forgiveness of Paycheck Protection Program (PPP) loans is ignored. Hawaii will adopt the same treatment.
- $300 Above-the-Line Charitable Deduction. The CARES Act amended the federal code to provide that individuals may deduct $300 in charitable contributions above the line (it counts against adjusted gross income). Hawaii will conform to this provision.
- Individual Charitable Contributions for 2020 Allowed Up to 100% of Contribution Base. Individuals are normally not allowed to deduct charitable contributions exceeding 60% of their contribution base (generally, their AGI). The CARES Act allows “qualified contributions” made in 2020 to be deductible up to 100% of the contribution base. Hawaii will follow that treatment.
- Corporate Charitable Contributions for 2020 Allowed Up to 25% of Taxable Income. Corporations are normally not allowed to deduction charitable contributions exceeding 10% of their taxable income (computed under section 170(b)(2)). The CARES Act allows “qualified contributions” made in 2020 to be deductible up to 25% of taxable income. Hawaii will follow that treatment.
- Technical Fix for “Qualified Improvements.” Businesses such as restaurants who placed into service “qualified improvement” property were expecting a 15-year depreciable life. Because of a boo-boo in the Tax Cuts and Jobs Act, such property was treated as 40-year or 39-year property ineligible for bonus depreciation. The CARES Act fixed the issue retroactively. Hawaii will follow that treatment, also retroactively. Those who placed such property in service in 2018 or afterward may want to amend prior returns to take advantage of this fix.
- Increased Limits on Loans from Qualified Plans for Affected Individuals. Individuals generally may not take out loans for more than the lesser of $50,000 or half their vested benefit. The CARES Act allows qualified individuals, generally defined as those impacted by COVID-19, to take out a plan loan up to $100,000 or all of their vested benefit, and to delay payments for one year. Hawaii will follow that treatment.
- Corporate Net Operating Losses. The 2018 Tax Cuts & Jobs Act made changes to corporate NOL provisions, including the elimination of loss carrybacks and limiting utilization of losses to 80% of current year’s income. The CARES Act rolled back the TCJA provisions as to NOLs arising in taxable years beginning in 2018, 2019, and 2020. Hawaii will not follow that treatment and will adhere to TCJA limitations.
- Noncorporate Net Operating Losses. The TCJA limited excess business losses which could be utilized against a taxpayer’s other income to $250K ($500K joint) . Anything else needed to be carried forward. The CARES Act rolled back the limits as to excess business losses arising in a tax year beginning in 2018, 2019, or 2020, and delayed the $250K/$500K limits until 2021. Hawaii will not follow that treatment and will adhere to TCJA limitations.
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