If you have out-of-state income that is taxed by another state or foreign country and also by Hawaii, you may claim a credit against your Hawaii income for the net income tax you paid to the other state or foreign country if you meet the following conditions:

• The income was earned while you were a Hawaii resident (or you are married and filing a joint resident return) and was not exempt from Hawaii income tax;
• You did not file an Election Under Act 60, SLH 1976 (see page 4);
• The income on which the state or foreign tax is imposed was derived or received from sources outside Hawaii;
• You were liable for and paid tax to the foreign jurisdiction (net amount of tax paid to a foreign jurisdiction after all credits, reductions, and refunds allowed or allowable by the laws of the foreign jurisdiction have been deducted);
• The tax paid to the other state or foreign country is an income-based tax that is imposed on both residents and nonresidents of the other state or foreign country, rather than a sales, gross receipts, withholding, or value added tax (i.e., taxes withheld on dividends paid from foreign investments do not qualify);
• No credit is allowed if the foreign income is excluded on the federal return;
• No credit is allowed if the foreign tax credit is allowed on the federal return;
• The income must be taxed by the other state or foreign country for the same taxable year for which the Hawaii credit is claimed;
• No credit is allowed for penalties or interest paid to the other state or foreign country; and
• No credit is allowed for city or local income taxes paid to another state.

To figure the allowable amount of the credit, fill in the Other State and Foreign Tax Credit Worksheet on page 28. On line 5 of the worksheet, enter the net amount of tax paid to the other state after all credits, reductions, and refunds allowed or allowable by the laws of the other state have been deducted (net tax liability).

Required Attachments

If you entered any amount on line 5, you must attach a copy of the tax return(s) from the other state(s). If you entered any amount on line 6, you must attach a copy of all federal Form(s) 1116 that you are filing this year. If you are not required to file federal Form 1116, attach a copy of the payee statement (such as federal Form 1099-DIV or 1099-INT) that you received for your foreign source income.

Out-of-State Tax Refund

If you claim this credit and you later receive a tax refund from the other state or foreign country, you MUST report this to the Department of Taxation. You may be subject to penalties if you fail to make this report.

For more information, see section 235-55, HRS, and section 18-235-55, Hawaii Administrative Rules.

Back