Section 18-235-7-02 - Exclusion of benefits under public retirement systems(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.Haw. Code R. § 18-235-7-02
[Eff 2/16/82; am and ren § 18-235-7-02 12/8/94] (Auth: HRS §§ 231-3(9), 235-118) (Imp: HRS § 235-7)