I recieved a COVID settlement payout from Hawaii 2 years after moving to Washington. How do I file my taxes?

[Gumball]

Basically the unions sued the state for unpaid hazard pay, and both my husband and I received it. Hawaii did not account for the fact we now live in Washington, even though our addresses say Washington throughout their systems. What should we be marking this on the Hawaii tax form or can we do it on the Washington one? We're expected to get the second half of the payment in March.

[xmasbaby0]

If you have lived in WA for two years, you should already be aware that WA has no state income tax, so there is no "Washington one" to file.  You have not told us when the first payment was received.

It is not clear what the "payout" is that you will receive in 2025 but if it has to be entered on a tax return at all, it goes on your 2025 federal return.    You no longer live in Hawaii, so you are not going to file a Hawaii return.   Provide more details in the forum when you actually receive that payout and tell us what kind of document you get for it, so that we can be more helpful.     It sounds like you are not expecting that money until 2025.

[TomD8]

Temporary hazard pay derived from employment in Hawaii is likely to be considered "Hawaii-source" income and taxable by the State of Hawaii, even if you are no longer a Hawaii resident.  You should be receiving a W-2 for that pay at year's end, and it is likely that Hawaii income tax will be withheld.  So you may have to report that income on a non-resident Hawaii tax return.

https://governor.hawaii.gov/wp-content/uploads/2024/06/240610017.pdf

[PKTaxMan]

I am in a similar situation. I worked for the State of Hawaii during the COVID-19 pandemic and then moved to Utah. The union that represented government employees obtained Temporary Hazard Pay for its members, which is being paid out in two installments. The first installment was paid in October 2024, and since I was already living in Utah then, I received a check in the mail. The second installment will be paid out in March of 2025. The gross amount of the first installment was $5000, which had federal and Hawaii State Income tax withheld. So the question is, how is this supposed to be listed as income on the federal return? Secondly, how do I avoid having this increase in income affect my Utah tax liability? Thirdly, how do I file for Hawaii in order to get a return of the state taxes they withheld when I am no longer a resident of Hawaii?

[TomD8]

@PKTaxMan --

Were the payment and withheld taxes reported to you on a W-2, or on a 1099?  You would report the payment in the appropriate section of TurboTax.

Since the payment is derived from services you physically provided in Hawaii, Hawaii will consider it "Hawaii-source" income and therefore taxable by Hawaii, even though you are no longer a Hawaii resident.  The fact that Hawaii taxes were withheld substantiates that the payer regards the payment as Hawaii-sourced.  Hawaii can tax non-residents on "Hawaii-source" income.

Eligibility for the payment required the employee to be "be physically at work 420 days* or more during the period March 4, 2020 through March 25,2022."  Thus the payment is derived from services physically performed within Hawaii (Hawaii-sourced).

https://www.hgea.org/Media/6562/summary-of-state-thp-offer-apr11-2024.pdf

If you received the payment after becoming a Utah resident, it is also taxable by Utah, since Utah taxes its residents on all income, regardless of source.

You will be able to claim an "other state credit" on your Utah return for the taxes paid to HI on that income.  The credit prevents double taxation of that income, which is prohibited.  You will need to file both a non-resident HI return and a resident UT tax return.  In TurboTax, complete the non-resident state return first, before your home state return, so that the program can calculate and apply the credit.