Updated October 5, 2026. Quick answer: It depends on who funded the plan. The instructions say “Hawaii does not tax qualifying distributions from an employer-funded pension plan.” Annuity plans you fund yourself are treated as your own investments, so they can be fully or partly taxable.
More state retirement-income schedules, line by line: Hawaii Form N-11 line 13.
How Hawaii treats annuity income
| Item | What the documents say |
|---|---|
| Treatment | Employer-funded plan distributions not taxed; self-funded annuities taxed on the part above basis |
| Rates | From 1.40% up to “plus 11.00% of excess over $650,000.” |
| Public systems | “Pension or annuity distributions from a public (i.e., government) retirement system” are not taxed |
| Self-funded | The instructions class “annuity plans and Individual Retirement Accounts” you fund yourself as “are considered to be your own investments” |
| Early distributions | Distributions subject to the 10% federal penalty do not qualify for the pension exclusion |
A $24,000 example
A retiree with $24,000 a year from an employer plan the retiree did not contribute to owes $0 of Hawaii tax on it, and the exclusion has no dollar cap.
The same $24,000 from an annuity the owner funded is taxed only to the extent it exceeds the owner’s basis; Schedule J of the instructions computes the taxable part, so no single figure applies without the contract’s basis.
What changes in 2026
The latest documents read print no 2026 change to the way annuity income is taxed.
Federal rules
The state’s treatment sits on top of the federal one. The IRS explains the federal side in Topic no. 410, Pensions and Annuities and Publication 575, Pension and Annuity Income.
Related: whether Hawaii taxes pensions, how Hawaii taxes retirement income, state tax on 401(k) and IRA withdrawals, how a surrendered annuity is taxed, and pension and annuity decisions.
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Answer againSources
- 2025 Form N-11 Instructions (Hawaii Department of Taxation): https://files.hawaii.gov/tax/forms/2025/n11ins.pdf
- HRS section 235-51, Tax imposed on individuals; rates (Hawaii Revised Statutes): https://data.capitol.hawaii.gov/hrscurrent/Vol04_Ch0201-0257/HRS0235/HRS_0235-0051.htm
- HRS section 235-7, Other provisions as to gross income (Hawaii Revised Statutes): https://data.capitol.hawaii.gov/hrscurrent/Vol04_Ch0201-0257/HRS0235/HRS_0235-0007.htm
Sources: the primary documents linked above, read on October 5, 2026. General information, not tax advice. Your own facts decide the outcome, and a preparer, the plan administrator or the agency itself is the right place to confirm anything consequential.