Hawaii Administrative Rules › Title 18 - DEPARTMENT OF TAXATION › Chapter 235 - INCOME TAX LAW › Subchapter 1 - GENERAL PROVISIONS › Section 18-235-7-02 - Exclusion of benefits under public retirement systems

Current through June, 2024
(a) The rules in this section shall be
				coordinated with provisions of the IRC. The IRC is operative in chapter
				235, HRS, pursuant to sections
				235-2.3
				to
				235-2.4,
				HRS, and other HRS provisions. To determine the taxability for state purposes
				of a distribution from a public retirement system, the taxpayer must first
				determine the federal income tax treatment for a distribution from such public
				retirement system. If a distribution from such public retirement system is not
				subject to federal income taxation, the distribution is similarly exempt from
				state income taxation under section
				235-2.3
				or
				235-2.4,
				HRS. If, however, the distribution is partially or totally subject to income
				taxation under section
				235-2.3
				or
				235-2.4,
				HRS, the taxpayer may turn to section
				235-7(a)(2),
				HRS, and this section to determine whether the taxpayer is able to claim a
				total or partial exemption for such taxable portion of the distribution, as the
				case may be.
(b) Section
				235-7(a)(2),
				HRS, excludes from gross income, adjusted gross income, and taxable income, any
				right, benefit, and other income exempted from taxation by section
				88-91,
				HRS, and comparable rights, benefits, and other income under any other public
				retirement system.
(c) As used in
				this section, "governmental plan" means a plan established and maintained for
				its employees by the United States, any state, the District of Columbia, the
				Commonwealth of Puerto Rico, any territory or possession of the United States,
				any foreign country, any political subdivision of any of the foregoing, or any
				agency or instrumentality of any of the foregoing. In interpreting this term,
				the department shall follow Internal Revenue Service interpretations of section
				414(d) (with respect to definition of governmental plan), Internal Revenue Code
				of 1986, including Rev. Rul. 89-49, 1989-1 C.B. 117.
Example:
T is a faculty member at W University,
				  a university that is an instrumentality of the State of Washington. T
				  participates in a pension fund established with F, a company selling annuity
				  contracts nationwide. F is not affiliated with or controlled by the State of
				  Washington. The pension fund in which T participates is not maintained by a
				  government or agency or instrumentality thereof. That pension fund is not a
				  governmental plan.
(d) Gross income
				does not include benefits paid by the State of Hawaii Employees' Retirement
				System that are described in section
				88-91,
				HRS, benefits paid by the United States Government under the Civil Service
				Retirement Act,
				5
				U.S.C. §§8331 et seq., or any
				comparable benefits paid by a governmental plan. Benefits shall be presumed to
				be comparable to those described in section
				88-91,
				HRS, if similar benefits paid by a plan other than a governmental plan would
				qualify for exclusion under section
				235-7(a)(3),
				HRS, and section 18-235-7-03.
(e)
				The exclusion provided by section
				235-7(a)(2),
				HRS, does not apply to benefits attributable to voluntary contributions made by
				an employee of a government employer under an elective right.
Example:
The State of Hawaii Deferred
				  Compensation Plan described in chapter
				  88E, HRS, is a plan described in
				  section 457 (with respect to deferred compensation plans of state and local
				  governments and tax exempt organizations), IRC. Pursuant to section
				  88E-2,
				  HRS, and section 457(b), IRC, participation in the plan is by written agreement
				  between the employee and the employing government agency, and thus is
				  voluntary. Benefits paid by the plan are not excluded from gross income under
				  section
				  235-7(a)(2),
				  HRS.
(f) Benefits from a governmental
				plan that are transferred between plans on a nontaxable basis, including
				amounts paid into a rollover individual retirement account, shall retain their
				character as benefits from a governmental plan.