Hawaii Out-of-State Credit

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;

• 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.