Hawaii Pension Taxes

[GreenDot954]

Hello,

I have a State of Alaska Defined Benefits teacher pension. As part of my employment I had to pay into this pension plan.

Is the income I receive from this plan taxable in Hawaii?

I've looked over the Hawaii tax code and can't quite understand if the income would be subject to Hawaiian taxes or not. If it isn't could you also point me to the code that states this?

Sincerely.

[rjs]

Pension income is subject to tax by the state that you live in when you receive the income. It doesn't matter what state the pension is from. So if you now live in Hawaii then, yes, your pension income is taxed by Hawaii.

[GreenDot954]

Thank you for your reply.

I suspect my questions were poorly framed.

I included the fact that the pension is from Alaska only because I don't know if Hawaii treats non-Hawaiian state pensions differently than Hawaiian state pensions.

But, the core of question is how Hawaii taxes pensions. From my reading it seems that Hawaii, in general, does not tax pensions. However, Hawaii treats pensions that are solely employer financed versus pensions where the employee also contributes differently.

Essentially, it seems that if an employee contributes to pension then at least a portion of the proceeds from the pension are taxable. But, if the pension is solely funded by the employer then the pension is 100% non-taxable.

The exception to this MIGHT be if the employee as no choice and is forced as a condition of employment to contribute to the pension. In this case 100% of the pension is not taxable. This is what I am trying to confirm.

Sincerely.

[NCperson]

@GreenDot954 - look at form 1099-R and specifically Box 1a and 2.  

Box 1a is the gross amount you received; Box 2 is the part that is taxable.

As you stated, you don't pay tax on the money you originally contributed, which is after tax monies.  That is represented by the difference of Box 1a minus Box 2.  

<<But, if the pension is solely funded by the employer then the pension is 100% non-taxable.>

It's the other way around..... if the pension is solely funded by the employer, then the pension is 100% TAXABLE - you never paid tax on that money!

[GreenDot954]

Thanks so much for taking the time to reply.

However, my question concerns Hawaiian taxation, not federal.

Sincerely.

[JotikaT2 · Accepted solution]

It actually depends.

If you did not have a choice and were required to make contributions to the pension plan, then according to this release from Hawaii, those contributions are to be considered nonvoluntary and are treated as if they were made by the employer.  On pension plans that are fully funded by an employer, those distributions are exempt from taxation within Hawaii as referenced in this source.  

A more recent code release can be found here.  It states that if your employer funds the pension, then it is not taxable in Hawaii.  The form instructions on page 13 here state that as well.

On the other side, if your contributions to the pension plan were voluntary, then you would be required to pay tax on the portion of the contribution made by your employer and report this taxable amount on Schedule J.  The Cornell link previously provided provides the ratio but essentially, the taxable amount would be calculated by dividing the employer contribution by the sum of the employer contributions, previously taxed contributions, and the employee contribution.  This ratio would then be multiplied by your yearly distribution to determine the amount taxable within Hawaii.

@GreenDot954 

[GreenDot954]

Cheers! Exactly what I was looking for!   👍