Model Hawaii's claim of right deduction and credit (section 1341 as operative in Hawaii from 2022)

[MaxGhenis]

Held for Max's ruling on the Hawaii reading (decision d1461). Do not merge before it.

Summary

From 2022 Hawaii applies 26 U.S.C. 1341 on its own: Hawaii tax is the lesser of the tax with a deduction for a repayment over $3,000 and the tax without it less the decrease in prior-year Hawaii tax, a refundable credit. Before 2022, and for repayments of $3,000 or less, a repayment is a miscellaneous itemized deduction above 2% of Hawaii AGI while Hawaii allows those (through 2025). PolicyEngine had none of this, so a repayment changed nothing in Hawaii. This PR adds it.

Stacked on #10038 (branch federal-claim-of-right-1341). Review the commits after dc10cc58ce except the merges of #10038's heads 2d36a76bca (its merge of main), 32b0c13a6a (Montana's miscellaneous itemized list takes the claim of right deduction from 2024, so Montana's tax now changes under the federal deduction method; under the credit method that deduction is zero) 6f34ccde23 (its second merge of main), d1c695b2f7 (itemizing branches inherit the claim of right method under core 3.33) and 17cad4b53b (changelog and docstring), which bring in no change of this PR's. Head a046804c7a.

• Inputs: hi_claim_of_right_prior_year_tax_decrease (tax unit; Form N-364 lines 4-6) and hi_claim_of_right_repayment_excluded_from_income (person; income Hawaii did not tax when received).
• hi_claim_of_right_repayment, hi_claim_of_right_section_1341_eligible, and hi_claim_of_right_credit_applies, which compares Hawaii income tax in two override branches (hi_income_tax_if_claiming_claim_of_right_credit, ..._deduction), as Model the claim of right repayment deduction and credit (26 U.S.C. 1341) and North Carolina's rules that depend on it #10038 does federally and as the model already does for Virginia's and Delaware's EITC.
• hi_claim_of_right_deduction joins Hawaii's itemized sources; hi_claim_of_right_credit joins Hawaii's refundable credits from 2022.
• Parameters: gov.states.hi.tax.income.claim_of_right.section_1341_operative (from 2022) and gov.states.hi.tax.income.deductions.itemized.miscellaneous_deductions_allowed (through 2025).

The law

• Act 56, SLH 2023, section 2, amends HRS 235-2.3(b)(40) to exclude Subchapter Q "except for section 1341 (with respect to computation of tax where taxpayer restores substantial amount held under claim of right)"; section 7(1) (PDF p. 5) applies that amendment "to taxable years beginning after December 31, 2021". Act 35, SLH 2026 (HB2329 CD1), PDF p. 11 keeps the exception, renumbered (b)(45).
• Form N-364 (2025): the credit is the tax on the prior Hawaii return less that tax refigured without the repaid income (lines 4-6); "If the amount you repaid was more than $3,000, you may be able to take a credit ... whichever results in the least tax", and "Remember to use the Hawaii tax rate in your computations"; "If the amount repaid was not taxed by Hawaii, no deduction or credit is allowed." Schedule CR (2025) lists the credit on line 9 of Part I, Refundable Tax Credits.
• HRS 235-2.4(b) (before 2026): "Section 67 (with respect to the 2-percent floor on miscellaneous itemized deductions) of the Internal Revenue Code shall be operative for purposes of this chapter, except that the suspension in section 67(g) shall not be operative". Act 35 deletes that sentence for taxable years beginning after December 31, 2025 (PDF pp. 17-18, 34), so section 67 applies as the Code has it, including the disallowance of miscellaneous itemized deductions in section 67(h); DOTAX Announcement 2026-06 (PDF p. 2): "Hawaiʻi will conform to IRC section 67(h), which disallows miscellaneous itemized deductions."
• Worksheet A-6 (2025 N-11 instructions, PDF p. 34): miscellaneous deductions above 2% of "Form N-11, line 20 (Hawaii AGI)".
• Before 2022 the N-11 instructions say "Repayments under a claim of right over $3,000 are subject to the 2% limitation for Hawaii income tax purposes" (2018 PDF p. 21; the 2021 edition says the same on p. 19).

The reading for Max (d1461)

For 2022-2025 this PR follows the statute: section 67(b)(9), operative through HRS 235-2.4(b), keeps the section 1341 deduction (over $3,000) outside the 2% floor, so a repayment of $3,000 or less is the floored one. The 2022-2025 N-11 instructions (2025 PDF p. 19) list "Deduction for repayment of amounts under a claim of right over $3,000" among expenses subject to the 2% limit and "of $3,000 or less" among those not subject to it: the reverse. Form N-364 line 2 also tells a filer who "took a deduction on your federal return instead of claiming a credit" to add the repayment to Hawaii AGI (N-11 line 10); under the statute the deduction simply is not taken under (a)(5), and PolicyEngine's Hawaii itemized deductions never include the federal one. A third point: N-11 applies refundable credits, this one included (Schedule CR line 9), before nonrefundable credits, which it caps at tax less refundable credits (2022 instructions, PDF p. 21). The model applies every Hawaii refundable credit after nonrefundable credits capped at gross tax, and this PR follows that order, which matches section 1341(a)(5) (tax without the deduction, then less the decrease). The order differs from N-11 only when nonrefundable credits exceed tax less refundable credits. Fixing it for all Hawaii credits is #10202 (draft, another session), which would give this credit N-11's order too; whichever of the two lands second states the combined result. Max's ruling decides all three before this leaves draft. From 2026 the floor question disappears on the statute reading (Act 35 disallows miscellaneous deductions), but would disallow the over-$3,000 deduction entirely if DOTAX kept treating it as miscellaneous.

Design notes

• Hawaii decides its own method. N-364 says to use whichever gives less tax at Hawaii rates, so the model compares Hawaii income tax with each method, independent of the federal method. Ties go to the deduction, as 26 CFR 1.1341-1(b)(3) says federally. The comparison runs only when some return qualifies.
• The threshold and the credit's facts. Hawaii adopts section 1341, so the model reads Model the claim of right repayment deduction and credit (26 U.S.C. 1341) and North Carolina's rules that depend on it #10038's $3,000 parameter, applied to the head's and spouse's repayments of income Hawaii taxed. The prior-year Hawaii tax decrease is a leaf input, as the federal one is.
• Miscellaneous floor. The model has no other Hawaii miscellaneous deductions, so the 2% floor applies to the repayment alone. Hawaii's 2009-style itemized limitation (hi_reduced_itemized_deductions) treats the deduction like other deductions it reduces.

Not modeled:

• Other Hawaii miscellaneous itemized deductions (unreimbursed employee expenses and the like), which share the 2% floor.
• Repayments deducted in arriving at AGI (repaid business income, for example): claim_of_right_repayment excludes them, so Hawaii's section 1341 relief for them is not modeled.

Household on main, #10038 and this branch (2025, single, age 40)

Script: ~/reviews/us-hub/claim-of-right-states/scripts/households.py; outputs evidence/households_*.json. main 95eefa51e5; #10038 dc10cc58ce; this branch 612ea5e94e (later commits change only parameter references).

Household	main	#10038	This branch
Wages $60,000, repays $10,000; earlier-year federal decrease $2,200, Hawaii decrease $1,500	Federal $5,071.50; HI $3,029.86	Federal $2,871.50 (credit); HI $3,029.86	HI $1,529.86: Hawaii credit $1,500
Wages $100,000, charity $20,000, repays $10,000; federal decrease $400, Hawaii decrease $100	Federal $11,159.50; HI $4,884.26	Federal $8,959.50 (deduction); HI $4,884.26	HI $4,124.26: Hawaii deduction $10,000 at 7.6%

Tests

gov/states/hi/tax/income/claim_of_right/hi_claim_of_right.yaml, 10 cases: each fixed Hawaii method; a $3,000 repayment floored at 2% of $50,000 ($2,000); 2021, where a $10,000 repayment is floored ($9,000) and there is no credit; 2026, where a $2,000 repayment is not deductible; income Hawaii never taxed; a joint return counting both spouses toward $3,000; the credit chosen when the Hawaii decrease ($1,500) exceeds what the deduction can save (at most 11% of $10,000); the deduction chosen when it saves more than a $100 decrease (at least 1.4% of $10,000); another state.

tests/unit/test_hi_claim_of_right_properties.py (the Rest job's remaining group). Why Python: Hawaii's method comes from two branch computations, which only separate simulations can check.

Invariants (stated and executed over a 108-return grid for each of 2021, 2025 and 2026: repayment × Hawaii decrease × wages × charity)

1. Lesser of. Hawaii income tax equals the smaller of the tax with the deduction method fixed and the tax with the credit method fixed (independent simulations), ties to the deduction; from 2022 both methods occur.
2. Branches. For eligible returns in 2025 and 2026, each branch equals the corresponding independent simulation.
3. Exclusive. Under section 1341 the deduction is the whole repayment or nothing and the credit the whole decrease or nothing, never both; before 2022 there is never a credit.
4. Independence; never raises; monotone. Hawaii tax is the same with the federal credit method fixed, never above its no-repayment value, and never rises as the repayment or the decrease grows.

Mutation check: four single-line mutants (ties to the credit, a 2% floor on the section 1341 deduction, the credit left out of the refundable list, section 1341 operative from 2021) each fail the suite.

The cross-state test from #10038 has the identical explicit-map commit carried by #10195, #10196 and #10198; Hawaii is listed, and its tax falls under the federal credit method.

Local runs (macOS, one file at a time): the YAML file passes 10 cases; the property file passes 11 tests in 6.1 s at 1.88 GB peak (23.5 s wall with import); the cross-state per-state test passes in 10.6 s. Details: evidence/tests.md.

Cost

About 6 s in the remaining group, measured locally (not CI); its process peaks at 1.88 GB including the model import, which the group's process already holds. 15 simulations of 108 returns, freed at teardown. For scale, the remaining group on main had 2,151 tests, 24:05 wall clock and 12.8 GB peak (run 37926760594, as reported in #10028); this PR's CI run will give the Linux figures.

Review

Review r1 (~/reviews/us-hub/claim-of-right-states/reviews/out-10200.md, REQUEST CHANGES) and the response (reviews/response-10200.md): the credit-ordering question is added to d1461 and the model-wide fix proposed separately; the scope of repayments deducted in arriving at AGI, the branch invariant and the CI cost are stated. Changing an input after calculating leaves stale results in PolicyEngine generally (core does not invalidate computed values; the federal tax shows the same with no state branches), so it is not specific to this PR.

Review r2 (reviews/out-10200-r2.md, APPROVE) found no new defect and confirmed the three readings left to Max (d1461): the 2022-2025 floor reversal, N-364 line 2's AGI add-back, and the credit ordering.

Reviews r1 and r2 ran on GPT-6.1 Sol. A delta review of the later reference change (r4, Opus 5.5, reviews/out-delta-r4.md) approves this head.

Microsimulation

2025, default dataset (populace_us_2024 at populace-us-2024-spm-20260909), run 2026-10-13 under the shared heavy-run lock: #10038's head dc10cc58ce against this branch at d1b8b2b124 (later commits only merge #10038's later heads and change tests or documentation). Driver and outputs: ~/reviews/us-hub/claim-of-right-states/impact/ (multi.sh; compare.hi.2025.json).

• claim_of_right_repayment is $0 on every record (weighted sum $0), so hi_claim_of_right_deduction and hi_claim_of_right_credit are $0 everywhere.
• No record changes in income_tax, state_income_tax, household_net_income, claim_of_right_credit_applies or hi_income_tax.

The change takes effect only for households that enter a repayment; the dataset has none.

Axiom

axiom: Act 56 (SLH 2023) / HRS 235-2.3(b)(40) and 235-2.4(b) — not yet queued. A rulespec-us pe-parity draft is held with the others (decision d1459) and waits on d1461 for the 2022-2025 reading. rulespec-us pins Hawaii's conformity at December 31, 2024 and defers itemized deductions (us-hi/policies/income_tax/resident_core_liability_pipeline.yaml).

🤖 Generated with Claude Code

[MaxGhenis]

Hand-off to the US + core hub (Hawaii; state claim of right lane, session local_d0c92ac9).

• Head: 0aa72e4b46. MERGEABLE. The PR's own changes are unchanged since the approving review; later commits only merge Model the claim of right repayment deduction and credit (26 U.S.C. 1341) and North Carolina's rules that depend on it #10038's heads 2d36a76bca (its merge of main) and 32b0c13a6a (Montana list).
• Review: delta review r4 (Opus 5.5) APPROVE; r2 (GPT-6.1 Sol) APPROVE (~/reviews/us-hub/claim-of-right-states/reviews/out-delta-r4.md, out-10200-r2.md).
• Passed locally at the current or reviewed head: the PR's YAML files, its property tests where it has them, and the cross-state test test_claim_of_right_section_1341_properties.py (33 tests, including 2026); details in ~/reviews/us-hub/claim-of-right-states/evidence/tests.md.
• Microsimulation: done (2025 default dataset); no record changes, and every new variable is $0 because claim_of_right_repayment is $0 on every record (~/reviews/us-hub/claim-of-right-states/impact/compare.*.2025.json).
• Pending: CI on this head.
• Depends on: Model the claim of right repayment deduction and credit (26 U.S.C. 1341) and North Carolina's rules that depend on it #10038 (federal section 1341), which must merge first; this branch carries its commits. After Model the claim of right repayment deduction and credit (26 U.S.C. 1341) and North Carolina's rules that depend on it #10038 squash-merges, merge upstream/main into this branch before landing.
• Hold for Max's ruling d1461 (2022-2025 statute vs N-11/N-364 instructions; the credit-ordering part is Apply Hawaii refundable credits before nonrefundable credits #10202).
• Axiom: the rulespec-us pe-parity draft is held for Max's go (d1459), with the hub's d1142 standing go as the alternative.
• Follow-ups owed: none from this PR. Kentucky is decision d1465; Pennsylvania needs no change.

[MaxGhenis]

Hand-off update (2026-10-14): new head 87a7f96e28, MERGEABLE. It merges #10038's 6f34ccde23 (its second merge of main). The PR's own changes are unchanged since the approving review. Local runs at this head: YAML 10, property 11, all passing. Everything else in the hand-off comment above still holds; the hub-file line is re-appended with this head.

[MaxGhenis]

Hand-off update (2026-10-14, supersedes the earlier one today): head a046804c7a merges #10038's final head 17cad4b53b (handed to the hub). Local runs at the d1c695b2f7 merge, under policyengine-core 3.33.3 (the version CI resolves): YAML 10, property 11 (2021, 2025, 2026), all passing; 17cad4b53b adds no code. The PR's own changes are unchanged since the approving review. The hub-file line is re-appended with this head.

[DTrim99]

PR Review: Model Hawaii's claim of right deduction and credit (section 1341 as operative in Hawaii from 2022)

PR #10200 (author: MaxGhenis, head a046804c7a, merge-base a2f63c1235). Stacked on #10038 (head 17cad4b53b). I reviewed its incremental diff, 17cad4b53b..a046804c7a: 17 files (+754/−10) in 5 commits (dcf9749147, 6d2cd4ccde, 2c83441e5d, 612ea5e94e, d1b8b2b124). Its other commits are merges of #10038's heads. Axiom: "Act 56 (SLH 2023) / HRS 235-2.3(b)(40) and 235-2.4(b) — not yet queued".

Summary

Act 56 of 2023 makes section 1341 operative in Hawaii for taxable years beginning after December 31, 2021. When a filer repays more than $3,000 of income Hawaii taxed in an earlier year, Hawaii tax is the lesser of two amounts, figured at Hawaii rates (Form N-364):

• the tax with a deduction for the repayment;
• the tax without it, minus the decrease in the earlier year's Hawaii tax. The decrease is a refundable credit.

Before 2022, and for repayments of $3,000 or less, a repayment is a miscellaneous itemized deduction above 2% of Hawaii AGI, while Hawaii allows those (through 2025). The PR adds:

• Inputs: hi_claim_of_right_prior_year_tax_decrease (tax unit; N-364 lines 4–6) and hi_claim_of_right_repayment_excluded_from_income (person).
• Eligibility:
  • hi_claim_of_right_repayment sums the head's and spouse's repayments of income Hawaii taxed.
  • hi_claim_of_right_section_1341_eligible tests that total against Model the claim of right repayment deduction and credit (26 U.S.C. 1341) and North Carolina's rules that depend on it #10038's $3,000 threshold, from 2022 (the new gov.states.hi.tax.income.claim_of_right.section_1341_operative).
• The method: hi_claim_of_right_credit_applies compares hi_income_tax in two override branches, with ties going to the deduction, whatever the federal method.
• The amounts:
  • hi_claim_of_right_deduction joins Hawaii's itemized sources, and hi_claim_of_right_credit joins its refundable credits from 2022.
  • The new gov.states.hi.tax.income.deductions.itemized.miscellaneous_deductions_allowed ends the 2% pool after 2025.
• Tests: 10 YAML cases, an 11-test property file over 108 returns in each of 2021, 2025 and 2026, and Hawaii's entry in Model the claim of right repayment deduction and credit (26 U.S.C. 1341) and North Carolina's rules that depend on it #10038's cross-state test.

The Hawaii work is right:

• The law checks out. Every quote in the code and body matches its source at the pages given: Act 56 §§2 and 7(1), Act 35 of 2026, HRS 235-2.4(b), Form N-364, Schedule CR, the 2018, 2021, 2022 and 2025 N-11 instructions and DOTAX Announcement 2026-06.
• Hawaii decides on Hawaii tax.
  • The comparison reads only Hawaii income tax, as N-364 says ("whichever results in the least tax"; "use the Hawaii tax rate"). It never reads the federal method.
  • The credit is refundable, as Schedule CR lists it in Part I.
• Nothing double counts, and there is no cycle.
  • Hawaii's itemized list never holds the federal deduction.
  • The Hawaii deduction is zero under (a)(5).
  • The branches take the method as an input.
• The arithmetic is right. I hand-checked all 10 YAML cases, the body's two households, Hawaii's row in the cross-state test, a refund case and a 2022 household at both trees.
• The tests pass at the head, on a merge with current main, and in CI.

One should-fix comes from main's #10202.

• What the merge does. It is clean, and on the merged tree the credit is used before nonrefundable credits, as HRS 235-91.5 requires.
• What's missing. The PR neither states nor tests that result, though its body says whichever of the two PRs lands second will. The body still describes the old order and leaves the question to Max under d1461.
• When it matters. Only 2022 has both this credit and a nonrefundable Hawaii credit, the EITC. There a head of household with the EITC can lose some or all of the relief. With $22,500 of wages, a $10,000 repayment and a $600 Hawaii decrease, relief is $0 on the merged tree, against $600 at this head.
• The refund. Nothing asserts the (b)(1) refund either.

A second should-fix: the axiom line isn't valid, as on #10203.

Five suggestions follow. This branch also inherits #10038's unresolved Should 1, so it can be approved only after #10038 is fixed and this branch merges #10038's new head.

Critical (must fix)

None.

Should address

1. The combined result with main's #10202 isn't stated or tested, and the body describes the old credit order.

• What Apply Hawaii refundable credits before nonrefundable credits #10202 did. It merged into main on 2026-10-14 at 10:21 UTC, after this head.

  • It adds hi_adjusted_tax_liability: hi_income_tax_before_non_refundable_credits minus hi_refundable_credits (N-11 line 34).
  • It caps hi_non_refundable_credits and the 2018–2022 nonrefundable hi_eitc at that amount.

• What the merge does. git merge-tree --write-tree PolicyEngine/main a046804c7a is clean (tree add05b02d7). On that tree, hi_refundable_credits holds hi_claim_of_right_credit from 2022, so the credit now comes before nonrefundable credits.

  • Only 2022 changes. gov.states.hi.tax.income.credits.non_refundable holds only hi_eitc through 2022 and is empty from 2023, and the credit starts in 2022.
  • There is no cycle. The chain runs hi_eitc → hi_adjusted_tax_liability → hi_refundable_credits → hi_claim_of_right_credit → hi_claim_of_right_credit_applies, which both branches take as an input. Apply Hawaii refundable credits before nonrefundable credits #10202's test_credit_lists_do_not_overlap still holds, because the credit is only in the refundable list.
  • The comparison adapts. It compares the final hi_income_tax in each branch, so it counts any EITC that the credit displaces.

• Hawaii law agrees with the merge.

  • The statute. HRS 235-91.5 (L 2010, c 21): "Notwithstanding any other law to the contrary providing for the use of an income tax credit under this chapter, in the offsetting of a taxpayer's income tax liability, tax credits that may be refunded or paid to the taxpayer who has no income tax liability shall be used first, followed by nonrefundable tax credits that may be used as credit against taxes in subsequent years until exhausted."
  • The form. 2022 N-11 instructions, PDF p. 21: line 34 is "Line 27 minus line 33", and "the total of the nonrefundable credits used cannot be greater than your adjusted tax liability. If line 34 is zero or less, nonrefundable tax credits may not be used."
  • The credit is refundable. Schedule CR lists it in Part I, Refundable Tax Credits:
    • 2024, line 9c: "Credit for repayment of amounts included in income from earlier years".
    • 2025, line 9: "Claim of Right Tax Credit (attach Form N-364)".

• What the body says. Under "The reading for Max (d1461)": "The model applies every Hawaii refundable credit after nonrefundable credits capped at gross tax, and this PR follows that order, which matches section 1341(a)(5) ... Fixing it for all Hawaii credits is Apply Hawaii refundable credits before nonrefundable credits #10202 (draft, another session), which would give this credit N-11's order too; whichever of the two lands second states the combined result."

  • This PR now lands second.
  • HRS 235-91.5's "notwithstanding" clause answers the third d1461 question, and Apply Hawaii refundable credits before nonrefundable credits #10202 already applies it to every Hawaii credit. So that question no longer needs a ruling.

• The effect. I took a 2022 head of household with a child aged 5 who repays $10,000 of income Hawaii taxed, with a $600 Hawaii decrease. Each cell gives Hawaii income tax without the repayment → with it, and the relief:

  Wages	This head (nonrefundable credits first)	Merged with main (refundable credits first)
  $15,000	−140.00 → −740.00 (600)	0.00 → −447.90 (447.90)
  $20,000	−110.00 → −710.00 (600)	0.00 → −142.00 (142)
  $22,500	−52.85 → −652.85 (600)	0.00 → 0.00 (0)
  $25,000	187.05 → −412.95 (600)	187.05 → 0.00 (187.05)
  $27,500	428.55 → −171.45 (600)	428.55 → 0.00 (428.55)
  $30,000	698.45 → 98.45 (600)	698.45 → 98.45 (600)

  • At $22,500 on the merged tree:
    • Tax is $728, and refundable credits are $710: the $110 food/excise tax credit plus the $600 claim of right credit.
    • Line 34 is $18, so the $670.85 Hawaii EITC is cut to $18 and line 36 is zero.
    • Without the repayment, line 34 is $618, the EITC is cut to $618, and line 36 is still zero.
    • The deduction method also ends at zero (tax $271.46, line 34 $161.46).
    • So the $600 credit only takes the place of EITC, and the comparison ties and keeps the deduction.
  • From $30,000 the EITC fits under line 34 either way, so the order doesn't matter.
  • Both columns are the lesser of the two fixed-method simulations, which agree with each tree's branch variables.
  • Part of the change is Apply Hawaii refundable credits before nonrefundable credits #10202's own. The no-repayment figures change too: $15,000 goes from −$140 to $0, because the food/excise credit now comes before the EITC. The relief figures isolate this PR's credit under each order.

• No test covers this or the refund.

  • The YAML asserts the method, the deduction and hi_claim_of_right_credit, but never hi_income_tax.
  • The property tests compare the model with itself, over single filers without children in 2021, 2025 and 2026. So there is no 2022 and no nonrefundable credit.
  • So no expectation tells the two credit orders apart: the PR's tests pass unchanged at the head and on the merged tree, though the table differs between them.
  • Nothing pins the (b)(1) refund either. Case 1's Hawaii tax is −$820 at both trees: the $600 credit plus a $220 food/excise tax credit.
  • CI's merge ref (9f2f692f) merged this head into a2f63c1235, before Apply Hawaii refundable credits before nonrefundable credits #10202, so CI never ran the combination.

• Fix:

  • Merge main.
  • Replace the body's third d1461 reading with the combined result: from 2022 the credit is used before nonrefundable credits (HRS 235-91.5, as Apply Hawaii refundable credits before nonrefundable credits #10202 implements). This affects only the 2022 Hawaii EITC, and the comparison already counts any EITC displaced.
  • Assert the (b)(1) refund. For example, take a 2025 single filer with $40,000 of wages, a $10,000 repayment and a $3,000 Hawaii decrease. At both trees that gives hi_claim_of_right_credit_applies: true and hi_income_tax: -1_429.79: 1,570.21 − 3,000, with no other Hawaii credit. Case 1's −$820 would also do, but it includes a $220 food/excise tax credit.
  • Add a 2022 case from the table, for example the $15,000 household. On the merged tree it gives hi_claim_of_right_credit_applies: true, hi_eitc: 0 (line 34 is −447.90) and hi_income_tax: -447.90. This head gives −740.

2. The axiom line isn't valid, and no rulespec-us issue covers Hawaii's section 1341.

• Where: the body's "## Axiom" section: "axiom: Act 56 (SLH 2023) / HRS 235-2.3(b)(40) and 235-2.4(b) — not yet queued. A rulespec-us pe-parity draft is held with the others (decision d1459) and waits on d1461 for the 2022-2025 reading."
• The rule. main's CLAUDE.md, "Axiom Parity (required for policy changes)", requires one line: encoded-correct, <rulespec PR> encoded, <rulespec issue> queued or n/a: <reason>.
  • needed is reserved for external contributors.
  • A queued issue must be open, labelled pe-parity and dispatch-ready.
• Nothing to point to yet.
  • Issue searches. Searching rulespec-us issues for "Hawaii claim of right", "1341 Hawaii", "235-2.3", "235-2.4", "Act 56" and "claim of right" finds two groups:
    • Use adds and subtracts everywhere #1656 and Replace aggr calls with add #1657, the North Carolina and federal issues.
    • Unrelated Hawaii issues: Add tentative federal poverty guidelines per November CPI-U #1663 (wagering losses), Update PA SNAP net income limit to 200% #1556 (mortgage limits), MA excess exemption not applied to long-term capital gains #1521 (the Form 4684 $100 rule) and Social Security doesn't sum components for individual households #1620 (per-spouse exemptions).
  • Modules. rulespec-us main (172bf04e4d, 2026-10-14) has only us-hi/statutes/235-54 and 235-55.
  • The pipeline. us-hi/policies/income_tax/resident_core_liability_pipeline.yaml pins "Hawaii's December 31, 2024 federal-conformity date" and lists itemized deductions as deferred, as the body says.
• d1461 blocks only part of it. The section 1341 comparison and the N-364 credit don't depend on the floor reading. Only the 2022–2025 floor for repayments of $3,000 or less does.
• Fix:
  • File a dispatch-ready pe-parity issue on the Add AMT parameters for 2020-2023 #1467 model:
    • Module path: for example us-hi/statutes/235-2.3.yaml for (b)(40), beside 235-54 and 235-55. It can apply Replace aggr calls with add #1657's us/statutes/26/1341.yaml to Hawaii tax.
    • Corpus citation: us-hi/statute/235-2.3, which the Hawaii pipeline already cites. The issue should confirm that the pinned text has the (b)(40) exception. The 2022 start is in Act 56 §7(1), so quote it too.
    • Verbatim law: 235-2.3(b)(40) as Act 56 §2 amends it (PDF p. 3), Act 56 §7(1) (PDF p. 5), and N-364's "whichever results in the least tax" and "use the Hawaii tax rate".
    • Required outputs:
      • whether the restored income Hawaii taxed exceeds $3,000;
      • whether the credit applies (strictly less tax, with ties going to the deduction);
      • the deduction;
      • the refundable credit.
    • Companion tests, from the sources the YAML uses:
      • $3,000 → not eligible
      • $10,000, all of it never taxed by Hawaii → nothing
      • spouses' $2,000 + $2,000 → eligible
      • case 8 → the credit, with Hawaii tax $1,529.86
      • case 9 → the deduction, with Hawaii tax $4,124.26
  • After d1461, add the 2022–2025 floor placement (235-2.4(b) with §67(b)(9)) as an addendum.
  • Then change the line to axiom: HRS 235-2.3(b)(40) TheAxiomFoundation/rulespec-us#NNNN queued.

Suggestions

1. For the d1461 ruling: the sources favor the implemented readings 1 and 2.

• Reading 1 (the 2022–2025 floor). Three points support the statute reading.
  • Why DOTAX floored every repayment before 2022.
    • HRS 235-2.5(a), PDF p. 16: "Reference in provisions of the Internal Revenue Code which are operative in this State to provisions in the Internal Revenue Code which are not operative in this State shall be considered inoperative".
    • Section 67(b)(9) refers to section 1341. So while section 1341 was inoperative, the over-$3,000 repayment stayed in the 2% pool. That is the 2018–2021 note.
    • Act 56 removed that reason from 2022.
  • DOTAX swapped the federal lines. The 2022 and 2025 N-11 lists reuse the 2017 Schedule A instructions' wording with the categories swapped.
    • Federally: "Deduction for repayment of amounts under a claim of right if $3,000 or less" is on line 23, subject to the 2% floor (PDF p. 12). "... if over $3,000" is on line 28, outside it (PDF p. 13).
    • Hawaii: the over-$3,000 deduction is listed as subject to the floor, and the $3,000-or-less deduction as not subject to it.
  • DOTAX's own pointer agrees with the statute. Both Hawaii entries say "See Repayments in the 2017 federal Publication 525". That section (PDF pp. 33–34) sends wage repayments to Schedule A, "and see the instructions there", which leads back to lines 23 and 28.
• Reading 2 (N-364 line 2's add-back).
  • The stated reason doesn't hold. It is "Because the deduction is included in the computation of your federal taxable income". But Hawaii starts from federal AGI (2025 N-11 instructions, PDF p. 11, line 7), and the Schedule A deduction never reduces federal AGI.
  • The add-back only matters above the line. It does something only for a repayment deducted in arriving at AGI, which claim_of_right_repayment excludes. For the repayments the model covers, an add-back would tax the repayment as income, so leaving it out is right.
• Reading 3 is settled by statute (Should 1).
• Fix: add these points to "The reading for Max".

2. Put the cases in variable-named files and pin the final tax.

• The rule. CLAUDE.md: "Add household examples, thresholds, edge cases, and mixed-household/vectorized cases to the corresponding variable-named YAML files." hi_claim_of_right.yaml names no variable and mixes the outputs of six.
• Fix:
  • Split it, for example cases 1, 2, 8 and 9 into hi_claim_of_right_credit_applies.yaml and cases 3–7 and 10 into hi_claim_of_right_deduction.yaml.
  • Add hi_income_tax to cases 8 and 9: $1,529.86 and $4,124.26, the body's figures, which I reproduced by hand and at both trees. The cases then pin the result the method choice is for.

3. Drop the page from a single-page reference title.

• Where: section_1341_operative.yaml:25: "Act 35, SLH 2026 (HB2329 CD1), HRS 235-2.3(b)(45) #page 11".
• The rule. CLAUDE.md: "One cited page: #page=57 in the href only, no page in the title."
• Fix: delete " #page 11" from the title. The href already has #page=11.

4. Update the body's cost line.

• Cost. The body says "this PR's CI run will give the Linux figures". Run 38545546945 gives them:
  • The property file took about 10 s in Rest shard-1's remaining group: 3.76 s of fixture setup and 6.30 s of teardown.
  • The group ran for 14:30 wall clock with a 7.82 GB peak on the 16 GB runner, against 7.76 GB on Model the claim of right repayment deduction and credit (26 U.S.C. 1341) and North Carolina's rules that depend on it #10038's run.

5. (Optional) Pool the repayment with the model's other miscellaneous expenses.

• The gap. The 2% floor applies to the repayment alone, as the body discloses. But the model already has expenses that share Worksheet A-6's floor: total_misc_deductions (unreimbursed employee expenses and tax preparation fees, lines 23–24). Hawaii's itemized list leaves them out in 2018–2025, a gap that predates this PR.
• Fix. Make one pool of total_misc_deductions plus the floored repayment, with a single floor, as Add Arkansas's claim of right deduction (Ark. Code § 26-51-457) #10203 does for Arkansas. That closes both gaps. A follow-up is fine.

Verified correct

• Hawaii law. Each citation shows the stated text:

  Source	Content
  Act 56, SLH 2023, PDF p. 3	§2 amends 235-2.3(b)(40): Subchapter Q is not operative "except for section 1341 (with respect to computation of tax where taxpayer restores substantial amount held under claim of right)".
  Act 56, PDF p. 5	§7(1): "the amendment to section 235-2.3(b)(40) ... shall apply to taxable years beginning after December 31, 2021", matching section_1341_operative.yaml 2022-01-01: true. Approved June 5, 2023.
  Act 35, SLH 2026 (HB2329 CD1), PDF p. 11	"(45) Subchapter Q ... except for section 1341".
  HB2329 CD1, PDF pp. 17–18, 34	§3 strikes the section 67 sentence (struck text on pp. 17–18), and section 68 becomes (b). §7(1): sections 2–4 "shall apply to taxable years beginning after December 31, 2025".
  HRS ch. 235 (compiled to 12/31/2025), PDF p. 11	235-2.4(b): "Section 67 (with respect to the 2-percent floor on miscellaneous itemized deductions) of the Internal Revenue Code shall be operative for purposes of this chapter, except that the suspension in section 67(g) shall not be operative". PDF p. 8 has (b)(40) with the section 1341 exception.
  DOTAX Announcement 2026-06, PDF p. 2	"Hawaiʻi will conform to IRC section 67(h), which disallows miscellaneous itemized deductions. Hawaii previously decoupled from the federal suspension ... for tax years 2018 through 2025."
  Form N-364 (2025)	"whichever results in the least tax"; "Remember to use the Hawaii tax rate in your computations"; "If the amount repaid was not taxed by Hawaii, no deduction or credit is allowed"; line 1: "If the amount on line 1 is $3,000 or less, STOP"; line 6 goes to Schedule CR line 9; one form per earlier year, with the line 6 amounts added.
  Schedule CR (2022, 2023, 2024, 2025)	The credit is in Part I from 2024 (line 9c, then line 9). The 2022 and 2023 schedules have no line for it, and files.hawaii.gov has no N-364 before 2025, so for 2022 and 2023 the credit was in the law but not on the forms.
  2018 N-11 instructions, PDF p. 21; 2021, PDF p. 19	"Repayments under a claim of right over $3,000 are subject to the 2% limitation for Hawaii income tax purposes."
  2022 and 2025 N-11 instructions, PDF p. 19	The over-$3,000 deduction is under "Expenses Subject to the 2% Limit", and "of $3,000 or less" is under "Expenses NOT Subject to the 2% Limit": the reversal the body describes.
  2025 N-11 instructions, PDF p. 34	Worksheet A-6: line 27 is "Form N-11, line 20 (Hawaii AGI)"; line 28 is "Multiply line 27 by 2% (.02). If zero or less, enter zero". The Total Itemized Deductions Worksheet, line 2, exempts only medical, investment interest, casualty and theft, and gambling.

• The lesser-of mechanics.

  • hi_claim_of_right_credit_applies compares the two branches' hi_income_tax rounded to cents with a strict <, so ties keep the deduction.
  • It returns false without branching when no unit qualifies.
  • Both amounts are gated on eligibility, so a user who sets the method by hand for a small repayment gets no credit. That is the gap Model the claim of right repayment deduction and credit (26 U.S.C. 1341) and North Carolina's rules that depend on it #10038's Suggestion 1 found in North Carolina.

• Independence and (b)(3).

  • Hawaii AGI starts from federal AGI (N-11 line 7), which the Schedule A deduction never touches.
  • The Hawaii list (charitable_deduction, hi_medical_expense_deduction, hi_interest_deduction, hi_casualty_loss_deduction, hi_salt_deduction) holds no federal claim of right amount.
  • Under (a)(5) the Hawaii deduction is zero. The property test's federal-credit run and the cross-state test confirm Hawaii tax ignores the federal method.

• No cycle or stale branch.

  • SALT. Hawaii's SALT deduction reads estimated withholding (hi_withheld_income_tax), not Hawaii tax.
  • The branches. They keep the default inherit_calculated=True, as the Virginia and Delaware EITC and Idaho aged-or-disabled branches do. That's safe:
    • Only the main simulation computes Hawaii tax, because the federal itemization and method branches compute only federal income_tax.
    • get_override_branch drops the inherited cache if the parent already holds the method.

• Floor and limitation.

  • The floor is 2% of Hawaii AGI, not less than zero (max_(hi_agi, 0), Worksheet A-6 line 28), read from gov.irs.deductions.itemized.misc.floor.
  • hi_reduced_itemized_deductions reduces the deduction, which matches the worksheet: it isn't among the line 2 exemptions.

• Household lists. household_refundable_credits and household_refundable_state_credits read hi_refundable_credits whole, so the credit reaches them.

• Threshold and inputs.

  • The threshold. Model the claim of right repayment deduction and credit (26 U.S.C. 1341) and North Carolina's rules that depend on it #10038's $3,000 parameter, with a strict >. Hawaii adopts section 1341(a)(3) through its annual conformity, so reading the federal parameter is fine while the amount stays at its 1954 level.
  • The inputs. Both are YEAR and USD, and documented. The Hawaii decrease is a different quantity from the federal one, and its documentation sums the earlier years, as N-364 says.

• Tests: hand checks (2025 single rates: 1.4% to $9,600 ... 7.2% to $48,000, then 7.6%; standard deduction $4,400; exemption $1,144).

  Expectation	By hand
  Case 1	Credit method fixed: credit = the 600 decrease; deduction 0 under (a)(5)
  Case 2	Deduction method fixed: deduction 10,000, outside the floor; credit 0
  Case 3	$3,000 doesn't exceed $3,000: 3,000 − 2% × 50,000 = 2,000
  Case 4	2021, section 1341 inoperative: 10,000 − 1,000 = 9,000; no credit
  Case 5	2026, miscellaneous deductions disallowed: 2,000 → 0
  Case 6	10,000 − 10,000 never taxed = 0: neither amount
  Case 7	2,000 + 2,000 = 4,000 > 3,000; the child's 5,000 is left out
  Case 8	SALT is the withholding estimate on 60,000 − 4,400: 2,539.20 + 7.6% × 7,600 = 3,116.80, below the 4,400 standard deduction. Credit: taxable 54,456; 2,539.20 + 7.6% × 6,456 = 3,029.86; less 1,500 = 1,529.86. Deduction: itemized 13,116.80; taxable 45,739.20; 1,675.20 + 7.2% × 9,739.20 = 2,376.42. The credit wins.
  Case 9	No SALT (AGI is not below $100,000). Deduction: taxable 68,856; 2,539.20 + 7.6% × 20,856 = 4,124.26. Credit: taxable 78,856 gives 4,884.26; less 100 = 4,784.26. The deduction wins.
  Case 10	California: 0 (defined_for)
  Cross-state test, Hawaii	Wages 60,000, gifts 25,000, SALT 3,116.80. No repayment: taxable 30,739.20; 859.20 + 6.8% × 6,739.20 = 1,317.47. Repays 10,000 with no Hawaii decrease entered, so Hawaii takes its deduction: taxable 20,739.20; 552 + 6.4% × 1,539.20 = 650.51.
  Refund (2025, wages 40,000, $3,000 Hawaii decrease)	SALT 1,648 is below 4,400. Taxable 34,456: 859.20 + 6.8% × 10,456 = 1,570.21; less 3,000 = −1,429.79. Deduction: taxable 27,208; 859.20 + 6.8% × 3,208 = 1,077.34. The credit wins, and $1,429.79 is refunded.
  2022 head of household, $22,500, merged tree	Standard deduction 3,212 and two exemptions of 1,144: taxable 17,000; 561.60 + 6.4% × 2,600 = 728. Refundable credits 110 + 600 = 710, so line 34 is 18. The EITC is 20% × (3,733 − 15.98% × 2,370) = 670.85, cut to 18, and line 36 is 0. Deduction: SALT 1,087.20; taxable 9,124.80; 165.60 + 5.5% × 1,924.80 = 271.46; line 34 is 161.46 and line 36 is 0. A tie, so the deduction applies.

  The YAML covers both branches of the lesser-of rule, $3,000, the joint return, 2021, 2026 and another state. The property grid adds $3,001. The refund and the 2022 order are Should 1.

• Python coverage and cost.

  • Why Python. The method comes from two branch computations, which only separate simulations can check. That meets CLAUDE.md's test for Python coverage.
  • Cost in CI. About 10 s, and the group peak barely moves (Suggestion 4).

• Code patterns.

  • All nine variables have defined_for = StateCode.HI.
  • No values are hard-coded: the start year and the end of the pool are parameters, and the threshold and floor come from the federal parameters Hawaii adopts.
  • The branch variables follow the existing Virginia, Delaware and Idaho pattern.
  • The parameter descriptions follow the boolean template ("..., if this is true.").

• Changelog. changelog.d/hi-claim-of-right.added.md is top-level and typed added.

• No partner test file is touched.

• Local runs (policyengine-core 3.32.29; CI uses 3.33.3):

  • At the head: the 10 YAML cases, the 11 property tests (23.7 s) and test_states_under_each_federal_method all pass.
  • On the merged tree (add05b02d7): the same files pass, plus Apply Hawaii refundable credits before nonrefundable credits #10202's three Hawaii YAML files, 25 cases (hi_adjusted_tax_liability.yaml, hi_non_refundable_credits.yaml and integration.yaml).
  • Probes. At both trees they reproduce cases 8 and 9, the body's households, Hawaii's cross-state row and the refund case. Each tree's derived tax equals the lesser of the two fixed-method simulations. The 2022 table is the only difference between the trees.

Cross-cutting checks

1. Law first: verified (table above), with the floor and add-back readings open for d1461 (Suggestion 1).
2. The (a)(4)/(a)(5) choice and (b)(3): Hawaii's own comparison on Hawaii tax; the deduction is zero under (a)(5); no federal amount is read; no cycle.
3. Threshold and aggregation: $3,000 with a strict >, on the head's and spouse's repayments net of income Hawaii never taxed. There is one return-level decrease, summed over earlier years as N-364 says.
4. State conformity:
   • Annual conformity to the Code, with section 1341 operative from 2022 (Act 56 §7(1)).
   • The credit is refundable.
   • Against Hawaii's other credits, the order on main follows HRS 235-91.5 (Should 1).
5. Inputs: two Hawaii inputs, documented. The person input is one of the five near-duplicates in Add Arkansas's claim of right deduction (Ark. Code § 26-51-457) #10203's stack-wide Suggestion 4.
6. "Other states" corrections: none in this PR.
7. Tests: 10 cases and 5 households hand-checked (the body's two, the cross-state row, the refund case and a 2022 household). The refund and the 2022 order are untested (Should 1).
8. Code patterns: right; the YAML file isn't variable-named (Suggestion 2).
9. Axiom: invalid (Should 2).
10. CI and branch: green; the merge is clean, but its credit order is untested (Should 1).

Inherited from #10038

#10038's posted findings are in this branch unchanged: Should 1 (California leaves the federal deduction out of CA itemized deductions) and Suggestions 1–5 (gate NC on eligibility; tighten the input docs and add "Federal" to a label; drop the 67(b)(9) reference; add NY IT-196 line 34 to the follow-up; fix the WI comment and stale status). Fix them in #10038, then merge its new head here.

Axiom line assessment

Invalid (Should 2).

• Why "not yet queued" doesn't qualify. It isn't one of the allowed forms. The author is staff, so needed doesn't apply either.
• No target yet. rulespec-us has no module or issue for HRS 235-2.3(b)(40) or Act 56. Its Hawaii pipeline defers itemized deductions.
• The corpus is likely ready. The Hawaii pipeline already cites us-hi/statute/235-2.3, so the issue can be dispatch-ready now once it confirms the (b)(40) text. Only the floor placement waits on d1461.

CI status

All 27 checks pass (gh pr checks 10200, run 38545546945, attempt 1, on head a046804c7a).

• Core version. CI used policyengine-core 3.33.3.
• The YAML cases ran. "Baseline (states-shard-4)" ran hi_claim_of_right.yaml (10 cases), all passing, in a group of 510.
• The property tests ran. "Rest (Python, shard-1 + variables)" ran all 11 tests in test_hi_claim_of_right_properties.py and test_states_under_each_federal_method (PASSED, 7.03 s), in the remaining group (2,351 passed).
• The merge CI tested predates Apply Hawaii refundable credits before nonrefundable credits #10202. The checkout was refs/remotes/pull/10200/merge at 9f2f692f ("Merge a046804 into a2f63c1"), so Apply Hawaii refundable credits before nonrefundable credits #10202 wasn't in it (Should 1).
• Partner tests. The PR touches no partner test files, and the Household API Partners job passes.

Branch status

• Position: 29 commits ahead of PolicyEngine/main (8ae01aa3cb, 2026-10-14) and 11 behind. Five of the 29 are this PR's own; the rest are Model the claim of right repayment deduction and credit (26 U.S.C. 1341) and North Carolina's rules that depend on it #10038's commits and merges of its heads.
• Merge: git merge-tree --write-tree PolicyEngine/main a046804c7a merges cleanly (tree add05b02d7).
  • No textual overlap. None of main's 11 new commits touches a file in this PR.
  • Hawaii files on main. Two of the commits change Hawaii variables: Apply Hawaii refundable credits before nonrefundable credits #10202 (credit order) and Make rules for a filer claimed elsewhere independent of which spouse is labelled head #10024 (dependent filers' standard deduction in hi_deductions). Make rules for a filer claimed elsewhere independent of which spouse is labelled head #10024 changes only dependent filers, and none of this PR's households is one.
  • The semantic interaction is Apply Hawaii refundable credits before nonrefundable credits #10202's (Should 1). On the merged tree, this PR's tests and Apply Hawaii refundable credits before nonrefundable credits #10202's Hawaii YAML cases pass. Only 2022 results change.
• Merge gates.
  • Model the claim of right repayment deduction and credit (26 U.S.C. 1341) and North Carolina's rules that depend on it #10038 first. This branch can merge only after Model the claim of right repayment deduction and credit (26 U.S.C. 1341) and North Carolina's rules that depend on it #10038. Once Model the claim of right repayment deduction and credit (26 U.S.C. 1341) and North Carolina's rules that depend on it #10038 is fixed and merged, merge main (or Model the claim of right repayment deduction and credit (26 U.S.C. 1341) and North Carolina's rules that depend on it #10038's final head) into this branch.
  • The d1461 ruling. The body holds the merge for Max's ruling. With HRS 235-91.5, only readings 1 and 2 remain.
• Siblings.
  • Add Illinois's and Ohio's claim of right repayment subtractions (35 ILCS 5/203(a)(2)(P), R.C. 5747.01(A)(12)) #10195 (IL/OH), Add Indiana's, Massachusetts's and West Virginia's claim of right repayment deductions #10196, Offset New Jersey claim of right repayments within their income category (N.J.S.A. 54A:5-2) #10198 and Add Arkansas's claim of right deduction (Ark. Code § 26-51-457) #10203 carry the identical relief-map hunk in the cross-state test (no diff against Add Arkansas's claim of right deduction (Ark. Code § 26-51-457) #10203's head), so it merges cleanly in any order.
  • They also share Model the claim of right repayment deduction and credit (26 U.S.C. 1341) and North Carolina's rules that depend on it #10038's itemized and refundable credit lists and its tests.

Own findings: 0 critical, 2 should, 5 suggestions. Changes are requested for this PR's Should 1 (the combined result with #10202) and Should 2 (the axiom line), and for the inherited #10038 Should 1. Approve once those are fixed, #10038 is fixed, and this branch merges #10038's new head.

Verdict: REQUEST_CHANGES

[DTrim99]

Requesting changes; details in the full report above. This PR's own findings are 0 critical and 2 should. (1) The combined result with main's #10202 is neither stated nor tested. The merge is clean, and on the merged tree the credit is used before nonrefundable credits, as HRS 235-91.5 requires. That only matters for 2022 (the nonrefundable Hawaii EITC): a head of household with $22,500 of wages, a $10,000 repayment and a $600 decrease gets $0 relief merged versus $600 at this head. No test reads hi_income_tax, so neither the ordering nor the (b)(1) refund is pinned. Please state the combined result and add tests. (2) The axiom line "not yet queued" is not an allowed form, and no rulespec-us issue covers HRS 235-2.3(b)(40). Please file a dispatch-ready pe-parity issue; only the floor addendum needs to wait on d1461. This branch also carries #10038's unresolved Should 1 (California), so approve once both items are fixed, #10038 is fixed, and this branch picks up #10038's new head. The Hawaii law checks out (Acts 56 and 35, HRS 235-2.4(b), N-364, Schedule CR), and all 10 YAML cases and 5 households were hand-checked.