Are Taxes High in Hawaii? What You Need to Know

Many people wonder about the tax landscape in Hawaii, often hearing that it is an expensive place to live. The state’s unique economic environment and diverse tax structure contribute to this perception. Understanding the various taxes levied in Hawaii, from individual income to property and consumption-based taxes, provides a clearer picture of the financial obligations for residents and visitors.

Hawaii’s State Income Tax

Hawaii operates a progressive state income tax system, featuring 12 income tax brackets for the 2024 tax year. These rates begin at 1.4% for lower income levels and can reach up to 11% for the highest earners.

The state provides standard deduction amounts that vary by filing status, which can reduce taxable income. Taxpayers can also choose to itemize deductions if their eligible expenses exceed the standard deduction, including certain medical expenses and home mortgage interest.

Hawaii offers several tax credits that can further reduce a taxpayer’s liability. These include a refundable Earned Income Tax Credit, a credit for childcare expenses, and a Low-Income Household Renters Tax Credit.

Hawaii does not tax distributions from qualified employer-funded pension plans or Social Security benefits. Capital gains, however, are taxed at the same rates as regular personal income.

Property Tax in Hawaii

Property taxes in Hawaii are distinctive because they are levied and administered at the county level, rather than by the state government. This means rates and assessment practices can differ across the four counties: Honolulu, Maui, Hawaii, and Kauai. Despite high property values, Hawaii generally has some of the lowest property tax rates in the United States, with an average effective property tax rate around 0.27% to 0.29%.

Property values are assessed annually by county officials to determine the market value for tax purposes. These assessments form the basis upon which the property tax rates are applied. Property owners receive assessment notices and have the right to appeal if they disagree with the valuation.

A significant factor contributing to lower property tax bills for many homeowners is the availability of homeowner exemptions. These exemptions reduce the taxable value of an owner-occupied principal residence. Larger exemptions are available for seniors.

While the actual tax rates per $1,000 of assessed value may seem low, the overall property tax paid can still be substantial due to the high median home values in the state. For instance, in Honolulu County, the residential rate is 3.50 per $1,000 of taxable value, leading to an average annual payment of $2,368, despite the low effective rate.

General Excise Tax and Other Taxes

Hawaii’s primary consumption tax is the General Excise Tax (GET), which functions differently from a typical sales tax found in other states. The GET is a tax on business activities, levied on the gross income of businesses rather than being a direct sales tax added at the point of sale. The statewide GET rate is 4% on most business activities.

Businesses often pass the GET burden on to consumers by adding it to the price of goods and services. In addition to the state rate, counties can impose a surcharge, which can increase the combined GET rate, such as a 0.5% surcharge in some counties. Wholesalers and manufacturers, however, pay a lower GET rate of 0.5% on their gross income from wholesale sales.

Beyond the GET, Hawaii levies several other taxes. The state imposes a fuel tax, which includes a state component of 16 cents per gallon, supplemented by county-level taxes ranging from 16.5 cents to 17 cents per gallon. Another notable tax is the Transient Accommodations Tax (TAT), applied to the gross rental proceeds from short-term lodging, such as hotel rooms and vacation rentals. The TAT rate is 10.25%, and counties are also authorized to impose an additional surcharge on these accommodations.

Hawaii also has an estate tax, but it does not impose an inheritance tax. The estate tax applies to estates valued over $5.49 million, with progressive rates ranging from 10% to 20%. This tax is paid by the deceased’s estate, not by the beneficiaries.

Overall Tax Burden and Unique Considerations

The overall tax burden in Hawaii synthesizes the impact of its various taxes, including income, property, and the General Excise Tax. While some individual tax rates, such as property tax rates, are comparatively low, the combination of these taxes contributes to what is often cited as one of the higher overall tax burdens in the United States.

The perception of high taxes in Hawaii is also significantly influenced by the state’s high cost of living. Although the cost of living is not a tax itself, it directly impacts the financial reality for residents. High prices for housing, groceries, and other goods and services mean that even moderate tax liabilities can feel more substantial when combined with elevated daily expenses.

While property tax rates are low, the exceptionally high values of real estate mean that the actual dollar amount paid in property taxes can still be considerable. Similarly, the General Excise Tax, which applies at multiple stages of production and distribution, can effectively increase the cost of nearly all goods and services purchased by consumers.

The state’s reliance on tourism also plays a role in its tax structure, with taxes like the Transient Accommodations Tax specifically targeting visitors. This approach helps fund public services and infrastructure, but it also means that the cost of visiting Hawaii is higher, which can indirectly affect the local economy through pricing.