Hawaii Government Employees Retirement Pension Subject To State Taxes
If you live in Hawaii, your Employees’ Retirement System (ERS) pension is generally exempt from Hawaii state income tax. But that exemption has limits—and the answer changes if you move, take a lump sum, or receive a refund of contributions.
Hawaii Revised Statutes §235-7 exempts qualified pension and retirement benefits from state tax, including monthly payments from the ERS (the defined-benefit plan covering state and county workers). You do not owe Hawaii state income tax on your regular pension benefit while you reside in Hawaii. That means you can count on the full monthly amount without state withholding.
The practical implication: you do not need to report your ERS pension as taxable income on your Hawaii return. But the moment you change your residency or receive a non-annuity payout, the tax treatment shifts. This article walks through the exact scenarios so you know when to act—and when you can ignore the issue entirely.
How Hawaii State Law Treats Your ERS Pension
Hawaii is one of the few states that explicitly exempts most pension income from state taxation. The exemption covers qualified government pensions (ERS, federal civil service, military retirement) and private-sector qualified plans (401(k), 403(b), IRA distributions). For ERS members, the key details are:
- Your monthly retirement allowance is exempt from Hawaii state income tax. Do not include it on the taxable pension line of Form N-11 or N-15.
- Federal income tax still applies. ERS will issue Form 1099-R each year showing the federally taxable amount. Hawaii’s exemption does not affect your IRS obligation.
- The statutory authority is HRS §235-7(a)(2). No special election or form is needed—simply omit the ERS pension amount from your state return.
What this does not mean: The exemption does not automatically cover lump-sum distributions, contribution refunds, or survivor benefits. Those are treated differently under Hawaii tax law.
The Three Scenarios That Change the Tax Answer
Most retirees assume “Hawaii doesn’t tax pensions, so I’m set.” That holds true for a monthly annuity while you are a Hawaii resident. But three specific situations can trigger state tax liability.
1. You Move to Another State
If you retire and relocate, the tax rules of your new state of residence apply to your ERS pension. Some states fully exempt government pensions; others tax them as ordinary income; a few offer partial credits.
What to check: Look up the pension tax treatment in your destination state. For example, California generally taxes out-of-state government pensions as ordinary income. Texas and Florida have no state income tax at all. Oregon offers a retirement income credit but phases it out at higher income levels.
Your action step: Before moving, contact the tax authority in your new state and ask specifically how it treats a Hawaii ERS pension. Request a written determination if possible. Your new state, not Hawaii, will tax the pension if applicable.
2. You Take a Lump-Sum Distribution or Refund of Contributions
A one-time lump-sum withdrawal or a refund of your ERS contributions plus interest is not automatically exempt under HRS §235-7. That statute applies to “amounts received as an annuity” from qualified plans. A lump-sum payout may not qualify as an annuity and could be taxable in Hawaii—even while you live there.
The nuance: The Hawaii exemption language centers on periodic annuity payments. If you take a single withdrawal (including a refund of contributions upon separation before reaching retirement age), the state may treat it as ordinary income.
Your action step: If you are considering a lump-sum withdrawal from ERS, ask ERS for the specific tax classification of that distribution. Then consult a Hawaii-licensed CPA or enrolled agent before committing. Do not assume the exemption applies.
3. After-Tax Contributions and the Proration Rule
ERS members may have made after-tax contributions (money already taxed before going into the system). A portion of each monthly payment is a return of those contributions and is not taxable for federal or state purposes. The proration calculation uses the IRS Simplified Method or General Rule.
What this means for state tax: Even though the entire pension is exempt from Hawaii state tax, you still need to track your tax basis for federal reporting. ERS includes the taxable amount on Form 1099-R based on the Simplified Method. For Hawaii, the proration is irrelevant—the full payment is exempt.
Common mistake: Discarding old ERS membership statements showing your after-tax contribution total. Keep those records. You or your heirs may need the basis number for federal tax purposes if you die before fully recovering the contributions.
Verify Whether Your ERS Pension Is Taxable in Your Situation
Follow these steps to confirm your exact tax treatment. Stop when you have a clear answer.
Step 1: Confirm your state of residence
- If you live in Hawaii → Step 2.
- If you live in another state → Skip to Step 5.
Step 2: Identify the type of ERS payment you receive
- Monthly retirement allowance (annuity) → Step 3.
- Lump-sum distribution or one-time refund of contributions → Step 4.
- Death benefit or survivor benefit → Contact ERS and a tax professional; survivor benefits may have different treatment.
Step 3: Check your Hawaii tax return for the exemption
- On Hawaii Form N-11 or N-15, do not include your monthly ERS benefit in the line for taxable pension income.
- Verification step: Log into your ERS online account at ers.ehawaii.gov and download your most recent 1099-R. Compare Box 1 (gross distribution) with Box 2a (taxable amount). For Hawaii state purposes, the entire Box 1 amount is exempt. If your tax preparer or software shows any portion on your state return, correct it.
- Success checkpoint: If your ERS pension is excluded from Hawaii taxable income, you are done. No further state tax action needed.
Step 4: Lump-sum or refund treatment
- Contact ERS at (808) 586-1735 or visit ers.ehawaii.gov and request the tax classification of your specific distribution.
- Ask: “Is this distribution eligible for the Hawaii state tax exemption under HRS §235-7, or is it treated as taxable income?”
- Escalation signal: If ERS cannot give a definitive answer, consult a Hawaii-licensed CPA or enrolled agent who handles state pension tax issues. Do not assume the exemption applies.
Step 5: New state of residence
- Go to your new state’s department of revenue website.
- Search for “pension exclusion” or “retirement income tax treatment.”
- Find the specific rule for out-of-state government pensions.
- Likely friction point: Some states give a full exemption only to their own government pensions and tax out-of-state government pensions as ordinary income.
- Escalation signal: If the state’s published guidance is unclear, call the state tax agency and ask about “Hawaii ERS pension taxation” specifically.
Three Expert Tips for ERS Retirees
Tip 1: Verify your 1099-R coding each year
When you receive your Form 1099-R from ERS (typically in January), check Box 7 for the distribution code. Code “7” means a normal distribution (retirement). Code “1” or “2” means an early distribution, which may have different tax treatment. If the code is unexpected, call ERS immediately.
Common mistake: Assuming the 1099-R is always correct. Errors happen. A wrong code can lead to incorrect tax filings for both federal and state purposes.
Tip 2: Never assume the exemption follows you across state lines
Before you move to another state, get a written determination from that state’s tax agency about how it treats Hawaii ERS pensions. Some states provide formal letter rulings on request.
Common mistake: Relying on a state’s general “retirement-friendly” reputation. A state can be tax-friendly overall but still tax out-of-state government pensions as ordinary income.
Tip 3: Track your after-tax contributions separately
Keep a copy of your ERS membership statement showing your after-tax contribution total. This is your tax basis. You or your heirs may need this number for federal tax reporting if you die before your contributions are fully recovered, or if you take a partial lump-sum distribution.
Common mistake: Discarding old ERS statements after retirement. Without the records, you may overpay federal tax on the portion that should be a tax-free return of basis.
Frequently Asked Questions
Do I need to file a Hawaii state tax return if my only income is my ERS pension?
Not if your total Hawaii-source income (excluding the exempt ERS pension) is below the Hawaii filing threshold. But if you have other income such as wages, rental income, or investment earnings, you may need to file even if the pension itself is exempt.
Is the ERS cost-of-living adjustment (COLA) also exempt from Hawaii state tax?
Yes. COLA payments are part of your monthly retirement allowance and receive the same state tax exemption as the base pension amount.
What if I work part-time after retirement while collecting my ERS pension?
Your wage income from that part-time job is subject to Hawaii state income tax and federal income tax. Only the ERS pension itself is exempt from Hawaii state tax. The two income streams are treated separately.
Does Hawaii tax my ERS pension if I move out of the country?
No. Hawaii state tax applies only to residents of Hawaii. If you move outside the United States, you are no longer a Hawaii resident, and Hawaii does not tax your pension. The country you move to may have its own tax rules.
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Michael Reynolds is a retirement benefits researcher and the lead author at Pension FAQ. With over 12 years of experience analyzing employer pension plans, state retirement systems, and Social Security policy, he specializes in translating complex pension rules into clear, actionable guidance for American workers and retirees.
Michael holds a Bachelor’s in Economics from the University of Michigan and has completed the Certified Retirement Counselor (CRC) program. His work has been cited by financial planners and HR professionals helping employees navigate their pension options.
At Pension FAQ, Michael leads a team covering employer plan access, state pension taxation, teacher and public employee retirement systems, professional sports pensions, and pension calculation rules. All content is rigorously reviewed against official plan documents and IRS guidelines.
Disclaimer: Pension FAQ content is for educational purposes only and does not constitute financial, tax, legal, or retirement benefits advice. Always consult your plan administrator or a qualified professional for decisions about your specific situation.