Hawaii Subtractions From Income
Military Reserve or Hawaii National Guard Duty Pay Exclusion
Hawaii does not tax the first $6,198 received by each member of the reserve components of the army, navy, air force, marine corps, coast guard of the United States of America, and the Hawaii national guard, as compensation for performance of duty as such. If you qualify, enter the smaller of:
- $6,137 or
- Your pay, as shown on Box 16 of the Form W-2 sent to you by your reserve component.
Note: If you are married filing a joint return, and you and your spouse qualify, add the exclusions for both of you and enter the total.
Payments to an Individual Housing Account
You may be able to deduct from your gross income up to $5,000 paid in cash during the taxable year into a trust account which is established for saving for a down payment on your first principal residence. A deduction not to exceed $10,000 shall be allowed for a married couple filing a joint return. No deduction shall be allowed on any amounts distributed less than 365 days from the date on which a contribution is made to the account. Any deduction claimed for a previous taxable year for amounts distributed less than 365 days from the date on which a contribution was made shall be disallowed and the amount deducted shall be included in the previous taxable year’s gross income and the tax reassessed. The account is to encourage first-time home buyers to save money for a down payment on a home.
Note: The “first principal residence” means a residential property purchased with the payment or distribution from the individual housing account which shall be owned and occupied as the only home by an individual who did not have any previous interest in, individually, or if the individual is married, whose spouse did not own any interest in a residential property inside or outside of Hawaii within the last 5 years prior to opening the IHA.
The amounts paid in cash allowable as a deduction for all taxable years are limited to $25,000, in the aggregate, excluding interest earned or accrued. This limitation also applies to married individuals having separate accounts; the sum of such separate accounts and the deduction shall not exceed $25,000 in the aggregate, excluding interest income earned or accrued.
Interest on an Individual Housing Account
If you have an Individual Housing Account (IHA), enter the interest earned by the account, as it appears on federal Form 1099-INT. If you purchased a principal residence with an IHA, or you are notified by an IHA trustee that you have received a taxable distribution, you must report the amount.
Compensation to Hansen’s Patient
Hawaii does not tax compensation by Hawaii or the U.S. to a patient affected with Hansen’s disease (also known as leprosy). Enter the amount of the qualifying compensation.
Expenses Disallowed because they were Connected with Federal Credits
If you are a business taxpayer; you claimed the work opportunity employment credit, or the credit for qualified clinical testing expenses; and some of your business expenses were disallowed because you took the credits (section 280C, Internal Revenue Code), enter the amount of the disallowed expenses. Hawaii does not have those credits, and does allow the expense deductions.
Legal Services Plans
If you received benefits from a qualified group legal services plan or if your employer contributed to a group legal services plan, and you reported these benefits or contributions as taxable income on your federal return, check with your plan to see that it qualifies under Hawaii standards. If it does, Hawaii will not tax these amounts. Enter the amount of federally taxable benefits or contributions.
Certain Income from a Qualified High Technology Business
- Royalties and other income derived from patents, copyrights, and trade secrets. Amounts received by an individual or a qualified high technology business as royalties and other income derived from patents, copyrights, and trade secrets (1) owned by the individual or qualified high technology business, and (2) developed and arising out of a qualified high technology business are excluded from gross income, adjusted gross income, and taxable income. If you reported these amounts for federal purposes, enter these amounts.
- Stock options income from qualified high technology business. All income earned and proceeds derived from stock options or stock, including stock issued through the exercise of stock options or warrants, from a qualified high technology business or from a holding company of a qualified high technology business by an employee, officer, or director of the qualified high technology business, or investor who qualifies for the high technology business investment tax credit is excluded from income taxes. If you reported these amounts for federal purposes, enter these amounts.
Other adjustments to Federal AGI include the following:
- Scholarship grants received by a student under the Nursing Scholars Program under section 304A-3304(d), HRS, is not subject to Hawaii income tax.
- The amount of payment stipend waived by Department of Education coaches and dispensed to the school for the benefit of the coach’s team is not subject to Hawaii income tax.
- The special federal election for capital assets acquired in tax years beginning before January 1, 2001 (election under section 311 of the Taxpayer Relief Act of 1997) is not available for Hawaii income tax purposes.
- The capital loss carryover for qualified high technology businesses is 15 years.
- Taxpayers who took up residence in Hawaii after attaining the age of 65 years and before July 1, 1976, and who elect to be taxed only on Hawaii source income, may have to make an adjustment here since only Hawaii source income and adjustments are included in the Hawaii adjusted gross income.
Note:There may be other adjustments to federal AGI (adjusted gross income) that are not discussed in these instructions. Such adjustments arise, for example, if a taxpayer makes an election for Hawaii tax purposes (such as an IRC section 179 election) but does not make the same election for federal tax purposes. If you believe you are entitled to an additional subtraction to arrive at Hawaii adjusted gross income, enter the amount of the adjustment.
Individual Development Accounts
If you have an individual development account, enter the amount of contributions you made to the account, and the amount of interest earned by the account (as it appears on federal Form 1099-INT).
Annual Pension Exclusion
Hawaii does not tax qualifying distributions from an employer-funded pension plan. If you received qualifying distributions from an employer-funded profit sharing, defined contribution, or defined benefit plan, or from a government retirement system (e.g., federal civil service, military pension, state or county retirement system), enter the qualifying amount here.
Taxpayers who itemize their deductions may deduct certain kinds of expenses from their adjusted gross income. Taxpayers who do not itemize their deductions may reduce their adjusted gross income by the amount of the standard deduction appropriate to their filing status.
You will fall into one of the following three classes:
• You MUST itemize deductions,
• You choose to itemize, or
• You do not itemize.
The three classes are described as follows:
You MUST Itemize Deductions
You must itemize deductions if:
- You are married, filing a separate return, and your spouse itemizes.
- You are making a return under IRC section 443(a)(1) for a period of less than 12 months because of a change in your annual accounting period.
You Choose to Itemize
You may choose to itemize your deductions if you are:
- Married and filing a joint return, or a qualifying widow(er) with dependent child, and your itemized deductions are more than $4,400.
- Married and filing a separate return, or Single, and your itemized deductions are more than $2,200.
- Head of Household, and your itemized deductions are more than $3,212.
- A dependent of another taxpayer and your itemized deductions are more than the greater of (1) $500 or (2) your earned income up to the amount of the standard deduction for your filing status.
You Do Not Itemize
If your itemized deductions are less than the amount shown above for your filing status (or you choose not to itemize), go to line 23 and enter your standard deduction amount there (unless you MUST itemize as described earlier). If you itemize, you can deduct part of your medical and dental expenses, and amounts you paid for certain taxes, interest, contributions, casualty and theft losses, and other miscellaneous expenses. These deductions are explained in form NR-11 (see link below).
For additional information, please see Form N-11 Instructions.