HAR § 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. HRS §235-7(a)(1) HRS §235-7(a)(2)