Hawaii does not tax qualifying distributions from an employer-funded pension plan. If you received qualifying distributions from an employer-funded profit sharing, defined contribution, or defined benefit plan, or from a government retirement system (e.g., federal civil service, military pension, state or county
retirement system), enter the qualifying amount here.
Nontaxable Distributions The following lines describe what qualifying distributions are. These qualifying distributions were included in your federal AGI and will be excluded on this line. For a distribution to qualify, it must be paid by a pension plan by reason of retirement, disability, or death. The
pension plan does not have to be a “qualified plan” as defined in section 401 of the Internal Revenue Code. Employer-Funded Pension Plans
The following three types of distributions are not taxed by Hawaii and should be included on line 13: (1) Pension or annuity distributions from a
public (i.e., government) retirement system (e.g., federal civil service annuity, military pension, state or county retirement system). (2) Distributions from a private employer pension plan received upon retirement (including early retirement and disability retirement) if the employee did not contribute to the
pension plan. (3) Distributions from a pension plan at age 70-1/2 that are made to comply with the federal mandatory payout rule do qualify as a retirement payment whether or not the employee is still working full time. Distributions from a private employer pension plan received upon retirement are partially taxed by Hawaii if the employee contributed to the pension plan.
A rollover IRA is treated as a continuation of the original plan that provided the money that is rolled over. If distributions from the original plan would be characterized as a qualified distribution, distributions out of the rollover IRA need not be reported as well. Example - In 1997, an individual received
a lump sum distribution from an employerfunded profit-sharing plan upon retirement. The individual did not contribute to the profitsharing plan. The entire lump sum distribution was rolled over to an IRA. In 2014, the individual rolled over $50,000 from the IRA to a Roth IRA. The entire amount rolled over
to the Roth IRA represents the lump sum distribution received by the individual upon retirement and earnings thereon. Since the lump sum distribution that the individual received upon retirement qualifies as a pension, the amount rolled over from the regular IRA to the Roth IRA also qualifies as a pension.
Therefore, the amount rolled over to the Roth IRA is exempt from Hawaii’s income tax.
Taxable Pensions and Annuities
Early distributions from a pension plan that are subject to the 10% federal penalty tax do not qualify and are taxable. Distributions from a deferred compensation plan may be partly or fully taxable. A deferred compensation plan includes any plan in which the employee has a choice of whether to contribute money into the plan or take that amount in cash or property. Examples include 401(k) plans, salary reduction Simplified Employee Pension (SARSEP) plans, the Federal Thrift Savings Plan, and section 457 plans like the State of Hawaii Deferred Compensation Plan.
Retirement vehicles that you fund yourself, such as annuity plans and Individual Retirement Accounts (IRAs) that are not funded through a Simplified Employee Pension (SEP) plan, are considered to be your own investments. Distributions from these plans may be fully or partly taxable, depending on whether your IRAs include deductible or nondeductible contributions. See federal Publication 590 and federal Form 8606, for more details.
A rollover IRA is treated as a continuation of the original plan that provided the money that is rolled over. If distributions from the original plan would be characterized as taxable, distributions out of the rollover IRA would be taxable as well. Example - In 1997, an individual received a lump sum distribution from an employerfunded profit-sharing plan upon separation from service before retirement. The individual did not contribute to the profit-sharing plan. The entire lump sum distribution was rolled over to an IRA. In 2014, the individual rolled over $50,000 from the IRA to a Roth IRA. The entire amount rolled over to the Roth IRA represents the lump sum distribution received by the individual upon separation from service and earnings thereon. Since the lump sum distribution that the individual received upon separation from service does not qualify as a pension (the distribution is not paid upon retirement, disability, or death), the amount rolled over from the regular IRA to the Roth IRA also does not qualify as a pension. Therefore, the amount rolled over to the Roth IRA is taxable for Hawaii’s income tax.
If you received a distribution from a plan that is partly pension and partly deferred compensation, such as a 401(k) plan with a profit sharing component or an employer matching program, a SEP plan with employer contributions as well as a salary reduction option, or a similar hybrid plan, attach Schedule J to figure the taxable amount.
If you received a lump-sum distribution from a pension plan and you are electing to use the special ten-year averaging method, attach Schedule J and Form N-152, Tax on Lump Sum Distributions, to figure the taxable amount. Note: If your lump-sum distribution included capital gain amounts, you may be able to reduce your tax by including the capital gain amounts on Form N-152 and electing the capital
gains treatment. See Form N-152 Instructions for more information. To compute the taxable portion of your annuity or pension, use Schedule J.
Caution: Certain transactions, such as loans against your interest in a qualified plan, may be treated as taxable distributions. For more information on the taxation of pensions, see sections 18-235-7-01 to 18-235-7-03, Hawaii Administrative Rules, Tax Information Release No. 90-4, “Taxability of Benefit
Payments from Pension Plan to Participants who Attain Age 70-1/2 as Required by the Internal Revenue Code Section 401(a)(9) (C)”, and Tax Information Release No. 96-5, “Taxation of Pensions Under the Hawaii Net Income Tax Law: Deferred Compensation Arrangements; Rollover IRAs; Sub-Accounts of
Pension Plans; Social Security and Railroad Retirement Act Benefits; Limitation on Deductions for Contributions to a Nonqualified Plan”.
Social Security Benefits
Hawaii does not tax Social Security or first tier Railroad Retirement Act benefits. Enter the amount from Form 1040, line 20b, or Form 1040A, line 14b.
Military Reserve or Hawaii National Guard Duty Pay Exclusion
Hawaii does not tax the first $6,137 received by each member of the reserve components of the army, navy, air force, marine corps, coast guard of the United States of America, and the Hawaii national guard, as compensation for performance of duty as such. If you qualify, enter the smaller of:
• $6,137, or • Your pay, as shown on Box 16 of the Form W-2 sent to you by your reserve component. If you are married filing a joint return, and
you and your spouse qualify, add the exclusions for both of you and enter the total on line 15.
Payments to an Individual Housing Account
You may be able to deduct from your gross income up to $5,000 paid in cash during the taxable year into a trust account which is established for saving for a down payment on your first principal residence. A deduction not to exceed $10,000 shall be allowed for a married couple filing a joint return. No deduction shall be allowed on any amounts distributed less than 365 days from the date on which a contribution is made to the account. Any deduction claimed for a previous taxable year for amounts distributed less than 365 days from the date on which a contribution was made shall be disallowed and the amount deducted shall be included in the previous taxable year’s gross income and the tax reassessed. The account is to encourage first-time home buyers to save money for a down payment on a home. The “first principal residence” means a residential property purchased with the payment or distribution from the individual housing account which shall be owned and occupied as the only home by an individual who did not have any previous interest in, individually, or if the individual is married, whose spouse did not own any interest in a residential property inside or outside of Hawaii within the last 5 years prior to opening the IHA. The amounts paid in cash allowable as a deduction for all taxable years are limited to $25,000, in the aggregate, excluding interest
earned or accrued. This limitation also applies to married individuals having separate accounts; the sum of such separate accounts and the deduction shall not exceed $25,000 in the aggregate, excluding interest income earned or accrued. For more information, see section 18-235-5.5, Hawaii Administrative Rules.
Exceptional Trees Deduction
You may deduct up to $3,000 per exceptional tree for qualified expenditures you made during the taxable year to maintain the tree on your private property. The tree must be designated as an exceptional tree by the local county arborist advisory committee under chapter 58, HRS. Qualified expenditures are those expenses you incurred to maintain the exceptional tree (excluding interest) that are deemed “reasonably necessary” by a certified
arborist. No deduction is allowed in more than one taxable year out of every three consecutive taxable years. The deduction is allowed for amounts paid in taxable years beginning after December 31, 2003. An affidavit signed by a certified arborist stating that the amount of expenditures are deemed reasonably necessary must be attached to your tax return. The affidavit also must include the following information: (1) type of tree, (2) location of tree, and (3) description and amount of expenditures made in 2014 to maintain the tree. The affidavit must be notarized.
Other Hawaii Subtractions
From Federal AGI This line is used to report other items that are taxed by the federal government but are not taxed by Hawaii, such as:
• Interest on federal obligations, including U.S. Savings Bonds.
• Differences in the taxable portion of the Hawaii tax refund.
• Interest earned on an Individual Housing Account.
• Compensation earned by patients with Hansen’s disease.
• Expenses not allowed on your federal return because they were connected with federal credits.
• Unearned income of children that you included in your federal return, if the children are filing Hawaii returns.
• Benefits from or premiums paid to legal services plans.
• Differences in the deduction for student loan interest.
• Differences in the taxable portion of employer-provided adoption benefits.
• Certain income from a qualified high technology business.
• Contributions to and interest earned by an individual development account.
• Section 235-7(a)(14), HRS, capital gain.
• Undistributed income earned by certain foreign corporations.
• Other adjustments.