Hawaii income tax: ERS's position
Benefits paid from the ERS (including the portion funded by the employer) are not subject to Hawaii income tax when paid. Employee contributions are subject to Hawaii income tax when contributed. Refunds are not subject to Hawaii income tax. Investment earnings on ERS money rolled over to an IRA are subject to Hawaii tax when withdrawn. Hybrid handout (Oct. 2026) p. 14, State of Hawaii Income Tax ('As of July 1, 2020'); ERS annual report 2024 p. 22, Taxation of Benefits; ERS 1099-R FAQ (2022) p. 8, Q10; ERS Special Tax Notice (2024) p. 3 ('As of December 1, 2022')
The Department of Taxation's 1996 release says certain pensions paid by public or private employers aren't subject to Hawaii income tax. Hawaii Tax Dept. TIR 96-5 (1996) p. 1 (HRS §235-7(a)(2) and (3): certain pensions paid by public or private employers are not subject to Hawaii income tax)
ERS says ERS benefits (including the employer-funded portion) are not subject to Hawaii income tax. The Department of Taxation's Schedule J instructions say a pension plan to which employee contributions were made must use Schedule J, and 'only the increase in the value of the plan attributable to your contributions is taxable'. The ERS sources are followed; whether Schedule J reaches Hybrid or Contributory ERS pensions is in needsValidation.
Hybrid handout (Oct. 2026) p. 14; Hawaii Tax Dept. Schedule J instructions (2025) PDF p. 2, Who Must Use This Form, item 4ERS says ERS benefits are not subject to Hawaii income tax; DOTAX Schedule J instructions say the part of a contributory pension attributable to employee contributions may be taxable. See conflicts 'hawaii-tax-schedule-j'.
What would settle it: A DOTAX statement or HAR §18-235-7-03 text on ERS Hybrid/Contributory pensionsFederal income tax
All ERS benefits are generally subject to federal income tax in the year paid; pre-1988 after-tax contributions are recovered over your expected lifetime. Certain work-related disability benefits are exempt from federal tax. Member contributions have been tax deferred under IRC 414(h) since Jan. 1, 1988. Hybrid handout (Oct. 2026) p. 14, Federal Income Tax; ERS annual report 2024 p. 11 and p. 22
Refunds: Rollover to an IRA avoids withholding; paid to you, at least 20% of the taxable portion is withheld. Under age 55 an additional 10% federal tax applies to the taxable portion unless rolled over. The refund is not subject to State of Hawaii income tax. Leaving Employment, Hybrid (2012) Q6-Q7
Living in another state
Residents of other states should ask that state's tax authorities. Hybrid handout (Oct. 2026) p. 14, Income Taxes in Other States
From the sources
- ERS pensions are not subject to Hawaii state income tax. Your own contributions were taxed by Hawaii when you made them.Hybrid handout (Oct. 2026) p. 14; ERS annual report 2024 p. 22
- ERS benefits are generally subject to federal income tax. ERS sends a Form 1099-R each year by January 31.Hybrid handout (Oct. 2026) p. 14; ERS annual report 2024 p. 22
- If you live in another state, that state's tax rules apply to your pension.Hybrid handout (Oct. 2026) p. 14
Questions
Does Hawaii tax my ERS pension?
ERS says no: ERS benefits, including the part your employer paid for, aren't subject to Hawaii income tax. The Department of Taxation's Schedule J instructions may say otherwise for the part from your own contributions. Check with ERS or a tax adviser.
Is it taxed by the IRS?
Yes, generally, in the year it's paid. ERS sends a Form 1099-R.
What if I move to another state?
Ask that state's tax agency. Its rules apply to you.
Source: Hawaii ERS Hybrid Retirement Information, October 2026, p. 14. Also: ERS annual report 2024 pp. 11, 22; ERS 1099-R FAQ (2022) p. 8, Q10; ERS Special Tax Notice (2024) p. 3; Hawaii Tax Dept. TIR 96-5 (1996) p. 1; Hawaii Tax Dept. Schedule J instructions (2025) PDF p. 2; Leaving Employment, Hybrid (2012) Q6-Q7. Last reviewed .