HAR § 18-235-61-04 — Services performed by employees within and without the State

(a) Resident employee. Wages earned by resident employees are subject to Hawaii income tax and are subject to withholding pursuant to section 235-61, HRS, and sections 18-235-61-01 to 18-235-61-14 regardless of where the services are performed. Therefore, even if the employee performs services out-of-state or for an employer which has an office in-state but is headquartered out-of-state, wages earned by a resident employee are subject to Hawaii income tax and withholding. If wages earned by a resident employee also are taxed by another jurisdiction, a tax credit may be available under section 235-55, HRS. (b) Nonresident employee. (1) In general. Wages paid to a qualifying nonresident employee for services performed in the State are not subject to withholding. The wages, however, may be subject to Hawaii income tax as imposed by section 235-4, HRS. An employee is a qualifying nonresident employee for purposes of section 235-61, HRS, and this section if: (A) The employee is performing services in the State for an aggregate of not more than sixty days during the calendar year; (B) The employee is a nonresident as set forth in section 235-1, HRS, or the employer reasonably believes the employee is a nonresident; (C) The employee is paid for services performed from an office located outside the State; (D) The employee’s regular place of employment (where the employee regularly performs services for the employer) is outside the State; and (E) The employer does not reasonably expect the employee to perform services in the State an aggregate of more than sixty days during the calendar year. A qualifying nonresident employee does not include an employee performing services for a contractor as defined in section 237-6(1), HRS, and the contractor is performing work for a construction project located in Hawaii. (2) Statement of nonresidency. To qualify for the exemption from withholding on wages as set forth in section 235-61, HRS, and this section, nonresident employees shall file a statement of nonresidency on forms prescribed by the department. (A) Filing requirement. All nonresident employees may file a signed statement of nonresidency with their employer. The employer then shall file the original statement of nonresidency with the director or designee in the taxation district in which the employer’s principal place of business is located or where services are principally performed. A copy of the form shall be retained in the records of the employer. (B) Effective date. The employer shall cease withholding taxes from a nonresident employee’s wages on or after the first payroll period or the first payment of wages after the statement of nonresidency is filed with the department. (C) Investigation of nonresidency status. An employer, however, shall withhold taxes from the wages of a nonresident if the employer is notified by the department of an investigation into the nonresidency status of the employee. Notice of the investigation and the department’s determination shall be sent to both the employer and the employee. The investigation into an employee’s residency status shall be completed within a reasonable time. The department shall notify both the employee and the employer of the department’s determination. HRS §235-61(e)