Update Hawaii income tax for Act 35 (2025 IRC conformity) and fix its itemized deduction limit

changelog.d/hi-act-35-2026-conformity.fixed.md

@@ -0,0 +1 @@
+Update Hawaii's income tax for Act 35, SLH 2026 (2025 Internal Revenue Code conformity): apply the overall itemized deduction limitation at Hawaii's $166,800 ($83,400 separate) threshold for every filing status and keep the full deduction when only excluded deductions are claimed; add the 2026-2028 qualified tips deduction and the non-itemizer charitable deduction; end the 2% miscellaneous itemized deductions after 2025; and measure the charitable deduction's limits and 2026 floor against Hawaii AGI.

policyengine_us/parameters/gov/states/hi/tax/income/deductions/itemized/limitation/agi_rate.yaml

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+description: Hawaii reduces itemized deductions by this share of Hawaii adjusted gross income above the itemized deductions reduction threshold, under the overall limitation on itemized deductions.
+values:
+  2021-01-01: 0.03
+metadata:
+  unit: /1
+  period: year
+  label: Hawaii itemized deductions limitation adjusted gross income rate
+  reference:
+    # Section 68 stays operative for Hawaii "in the form that it existed as of
+    # December 31, 2024" (Act 35, SLH 2026, for taxable years beginning after
+    # December 31, 2025); section 68(a)(1) sets the 3 percent rate.
+    - title: Act 35, SLH 2026 (H.B. 2329, C.D. 1), Section 3, amending HRS 235-2.4(b)
+      href: https://data.capitol.hawaii.gov/sessions/session2026/bills/HB2329_CD1_.pdf#page=18
+    - title: 26 U.S. Code 68(a)(1) (2024 edition)
+      href: https://www.govinfo.gov/content/pkg/USCODE-2024-title26/html/USCODE-2024-title26-subtitleA-chap1-subchapB-partI-sec68.htm
+    - title: 2021 Hawaii N-11 Instructions, Total Itemized Deductions Worksheet, line 9
+      href: https://files.hawaii.gov/tax/forms/2021/n11ins.pdf#page=32
+    - title: 2025 Hawaii N-11 Instructions, Total Itemized Deductions Worksheet, line 9
+      href: https://files.hawaii.gov/tax/forms/2025/n11ins.pdf#page=34

policyengine_us/parameters/gov/states/hi/tax/income/deductions/itemized/limitation/excluded_deductions.yaml

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+description: Hawaii excludes these deductions from the itemized deductions that the 80 percent ceiling of the overall limitation on itemized deductions applies to.
+values:
+  # Section 68(c) excludes medical expenses, investment interest, and
+  # casualty, theft and wagering losses. PolicyEngine's Hawaii itemized
+  # deductions do not include wagering losses.
+  2021-01-01:
+    - hi_medical_expense_deduction
+    - investment_interest_expense
+    - hi_casualty_loss_deduction
+metadata:
+  unit: list
+  period: year
+  label: Hawaii itemized deductions excluded from the limitation ceiling
+  reference:
+    - title: 26 U.S. Code 68(c) (2024 edition)
+      href: https://www.govinfo.gov/content/pkg/USCODE-2024-title26/html/USCODE-2024-title26-subtitleA-chap1-subchapB-partI-sec68.htm
+    - title: 2021 Hawaii N-11 Instructions, Total Itemized Deductions Worksheet, line 2
+      href: https://files.hawaii.gov/tax/forms/2021/n11ins.pdf#page=32
+    - title: 2025 Hawaii N-11 Instructions, Total Itemized Deductions Worksheet, line 2
+      href: https://files.hawaii.gov/tax/forms/2025/n11ins.pdf#page=34

policyengine_us/parameters/gov/states/hi/tax/income/deductions/itemized/limitation/itemized_deduction_rate.yaml

@@ -0,0 +1,19 @@
+description: Hawaii limits the reduction of itemized deductions to this share of the itemized deductions other than the excluded deductions, under the overall limitation on itemized deductions.
+values:
+  2021-01-01: 0.8
+metadata:
+  unit: /1
+  period: year
+  label: Hawaii itemized deductions limitation deduction rate
+  reference:
+    # Section 68 stays operative for Hawaii "in the form that it existed as of
+    # December 31, 2024" (Act 35, SLH 2026, for taxable years beginning after
+    # December 31, 2025); section 68(a)(2) sets the 80 percent rate.
+    - title: Act 35, SLH 2026 (H.B. 2329, C.D. 1), Section 3, amending HRS 235-2.4(b)
+      href: https://data.capitol.hawaii.gov/sessions/session2026/bills/HB2329_CD1_.pdf#page=18
+    - title: 26 U.S. Code 68(a)(2) (2024 edition)
+      href: https://www.govinfo.gov/content/pkg/USCODE-2024-title26/html/USCODE-2024-title26-subtitleA-chap1-subchapB-partI-sec68.htm
+    - title: 2021 Hawaii N-11 Instructions, Total Itemized Deductions Worksheet, line 5
+      href: https://files.hawaii.gov/tax/forms/2021/n11ins.pdf#page=32
+    - title: 2025 Hawaii N-11 Instructions, Total Itemized Deductions Worksheet, line 5
+      href: https://files.hawaii.gov/tax/forms/2025/n11ins.pdf#page=34

policyengine_us/parameters/gov/states/hi/tax/income/deductions/itemized/misc/in_effect.yaml

@@ -0,0 +1,22 @@
+description: Hawaii allows miscellaneous itemized deductions above the adjusted gross income floor if this is true.
+values:
+  # HRS 235-2.4 made section 67 operative except for the section 67(g)
+  # suspension for 2018 through 2025. Act 35, SLH 2026 strikes that exception
+  # for taxable years beginning after December 31, 2025.
+  2021-01-01: true
+  2026-01-01: false
+metadata:
+  unit: bool
+  period: year
+  label: Hawaii miscellaneous itemized deductions in effect
+  reference:
+    - title: 2021 Hawaii N-11 Instructions, Worksheet A-6, Miscellaneous Deductions
+      href: https://files.hawaii.gov/tax/forms/2021/n11ins.pdf#page=32
+    - title: 2025 Hawaii N-11 Instructions, Line 21f, Miscellaneous Deductions
+      href: https://files.hawaii.gov/tax/forms/2025/n11ins.pdf#page=19
+    - title: 2025 Hawaii N-11 Instructions, Worksheet A-6, Miscellaneous Deductions
+      href: https://files.hawaii.gov/tax/forms/2025/n11ins.pdf#page=34
+    - title: Act 35, SLH 2026 (H.B. 2329, C.D. 1), Section 3, amending HRS 235-2.4
+      href: https://data.capitol.hawaii.gov/sessions/session2026/bills/HB2329_CD1_.pdf#page=17
+    - title: Hawaii Department of Taxation Announcement No. 2026-06, Act 35
+      href: https://files.hawaii.gov/tax/news/announce/ann26-06.pdf#page=2

policyengine_us/parameters/gov/states/hi/tax/income/deductions/itemized/sources.yaml

@@ -1,11 +1,12 @@
 description: Hawaii deducts the following itemized deductions.
 values:
   2018-01-01:
-    - charitable_deduction
+    - hi_charitable_deduction
     - hi_medical_expense_deduction
     - hi_interest_deduction
     - hi_casualty_loss_deduction
     - hi_salt_deduction
+    - hi_misc_deduction
 metadata:
   unit: list
   period: year
@@ -24,4 +25,6 @@ metadata:
     - title: Hawaii Income Tax Law, Chapter 235, Section 235-2.4
       href: https://files.hawaii.gov/tax/legal/hrs/hrs_235.pdf#page=10
     - title: 2025 Hawaii N-11 Instructions Itemized Deductions
-      href: https://files.hawaii.gov/tax/forms/current/n11ins.pdf#page=17
+      href: https://files.hawaii.gov/tax/forms/2025/n11ins.pdf#page=17
+    - title: 2025 Hawaii N-11 Instructions, Itemized Deductions Worksheet, line 32
+      href: https://files.hawaii.gov/tax/forms/2025/n11ins.pdf#page=34

policyengine_us/parameters/gov/states/hi/tax/income/deductions/itemized/threshold/reduction.yaml

@@ -1,4 +1,4 @@
-description: Hawaii reduces the total itemized deductions amount for filers with federal adjusted gross income below this amount, based on filing status.
+description: Hawaii reduces itemized deductions for filers with Hawaii adjusted gross income above this amount, based on filing status, under the overall limitation on itemized deductions.
 
 
 SINGLE:
@@ -28,9 +28,15 @@ metadata:
       href: https://files.hawaii.gov/tax/forms/2022/n11ins.pdf#page=32
     - title: 2021 Hawaii Resident Income Tax Instructions
       href: https://files.hawaii.gov/tax/forms/2021/n11ins.pdf#page=32
-    # The legal code specifies a reduction threshold aligning with the IRS threshold in 2009
-    # However, the tax forms and instructions only reflect the 2009 threshold for single filers 
+    # HRS 235-2.4 (subsection (c) before 2026, (b) from 2026 under Act 35,
+    # SLH 2026) uses the section 68 thresholds "operative for federal tax year
+    # 2009": $166,800 for every filing status except married filing
+    # separately ($83,400).
     - title: Hawaii Income Tax Law, Chapter 235, Section 235-2.4, (c)(1)
       href: https://files.hawaii.gov/tax/legal/hrs/hrs_235.pdf#page=11
-    - title: 2025 Hawaii N-11 Instructions Itemized Deductions
-      href: https://files.hawaii.gov/tax/forms/current/n11ins.pdf#page=32
+    - title: Act 35, SLH 2026 (H.B. 2329, C.D. 1), Section 3, amending HRS 235-2.4(b)
+      href: https://data.capitol.hawaii.gov/sessions/session2026/bills/HB2329_CD1_.pdf#page=18
+    - title: 2009 Instructions for Schedule A (Form 1040), Itemized Deductions Worksheet, line 6
+      href: https://www.irs.gov/pub/irs-prior/i1040sca--2009.pdf#page=11
+    - title: 2025 Hawaii N-11 Instructions, Total Itemized Deductions Worksheet, line 7
+      href: https://files.hawaii.gov/tax/forms/2025/n11ins.pdf#page=34

policyengine_us/parameters/gov/states/hi/tax/income/deductions/non_itemizer_charitable/in_effect.yaml

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+description: Hawaii allows the federal charitable deduction for taxpayers who do not itemize if this is true.
+values:
+  # Act 13, SLH 2020 adopted the 2020 deduction, which reduced federal
+  # adjusted gross income for taxpayers who did not itemize on their federal
+  # return; PolicyEngine applies it to Hawaii non-itemizers below the line.
+  # Act 89, SLH 2021 adopted section 170(p) for 2021. The federal amount is
+  # zero for 2022 to 2025. Act 35, SLH 2026 conforms to section 170(p) as
+  # amended by P.L. 119-21 for taxable years beginning after December 31, 2025.
+  2020-01-01: true
+metadata:
+  unit: bool
+  period: year
+  label: Hawaii non-itemizer charitable deduction in effect
+  reference:
+    - title: 2020 Hawaii N-11 Instructions, Changes to Note
+      href: https://files.hawaii.gov/tax/forms/2020/n11ins.pdf#page=2
+    - title: 2021 Hawaii N-11 Instructions, Line 23
+      href: https://files.hawaii.gov/tax/forms/2021/n11ins.pdf#page=20
+    - title: Hawaii Department of Taxation Announcement No. 2026-06, Act 35
+      href: https://files.hawaii.gov/tax/news/announce/ann26-06.pdf#page=2
+    - title: 26 U.S. Code 170(p)
+      href: https://www.law.cornell.edu/uscode/text/26/170#p

policyengine_us/parameters/gov/states/hi/tax/income/deductions/tip_income/in_effect.yaml

@@ -0,0 +1,22 @@
+description: Hawaii allows the federal deduction for qualified tips if this is true.
+values:
+  # For 2025, HRS 235-2.3(a) conforms to the Internal Revenue Code as amended
+  # as of December 31, 2024, before P.L. 119-21 added section 224.
+  2025-01-01: false
+  # Act 35, SLH 2026 conforms to the Internal Revenue Code as amended as of
+  # December 31, 2025 and does not make section 224 inoperative.
+  2026-01-01: true
+  # Section 224(h) allows no deduction for taxable years beginning after
+  # December 31, 2028.
+  2029-01-01: false
+metadata:
+  unit: bool
+  period: year
+  label: Hawaii qualified tips deduction in effect
+  reference:
+    - title: Act 35, SLH 2026 (H.B. 2329, C.D. 1), Section 2, amending HRS 235-2.3
+      href: https://data.capitol.hawaii.gov/sessions/session2026/bills/HB2329_CD1_.pdf#page=1
+    - title: Hawaii Department of Taxation Announcement No. 2026-06, Act 35
+      href: https://files.hawaii.gov/tax/news/announce/ann26-06.pdf#page=3
+    - title: 26 U.S. Code 224(h)
+      href: https://www.law.cornell.edu/uscode/text/26/224#h