Expanding Hawaiʻi’蝉 Child and Dependent Care Tax Credit could help more parents stay in or reenter the workforce while partially offsetting its own cost through increased state tax revenue, according to a new report released May 1 by the (糖心Vlog官方ERO).
The report examines proposals before the state legislature to increase the maximum childcare tax credit from $2,500 to $5,000 per child, with two bills taking different approaches to how benefits phase out as household income rises.
Researchers find that Hawaiʻi’蝉 high childcare costs are among the highest in the nation, and often discourage secondary earners, most often mothers, from returning to work. In 2024, center-based infant care averages more than $24,000 annually in Hawaiʻi.
The report explains that the policy’s offsetting effect occurs when a second parent enters the workforce, resulting in increased income tax revenue and additional general excise tax collections. In one mid-income household example, a second earner returning to work would generate $3,401 in state income tax revenue and $1,763 in additional GET revenue under the targeted credit proposal, resulting in a net fiscal gain of $2,663 for the state even after accounting for the $2,500 credit cost.
The report finds the strongest case for expanding the credit is among middle-income households, where childcare costs consume a large share of income, and the added tax credit is more likely to influence work decisions.
However, the report cautions that expanding the credit alone may not be sufficient if Hawaiʻi’蝉 childcare supply cannot keep pace with demand. Without more childcare spaces, subsidies could simply drive up prices rather than improve access. The report also notes that for lower-income families, benefit cliffs—when earning slightly more income causes families to lose eligibility for public benefits such as SNAP or childcare assistance—could reduce the effectiveness of any tax credit expansion.
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