Does Hawaii Have a State Income Tax? Everything You Should Know

Hawaii’s tax system is a key component of its fiscal policy, impacting both residents and nonresidents. As an archipelago with unique economic challenges and opportunities, understanding Hawaii’s state income tax is crucial for those living or working in the Aloha State.

This article examines key aspects of Hawaii’s tax framework, including filing criteria, tax rates, taxable income sources, and more.

Resident Filing Criteria

Hawaii defines a resident for tax purposes as someone domiciled in the state or who spends more than 200 days in Hawaii during the tax year. Residents are taxed on their worldwide income, while nonresidents are taxed only on income sourced from Hawaii.

Residents must file a tax return if their gross income exceeds the standard deduction and personal exemption amounts. For 2024, the standard deduction for single filers is $2,200, and for married couples filing jointly, it is $4,400. Personal exemptions are $1,144 per person. These thresholds determine filing obligations.

Part-year residents—those who move into or out of Hawaii during the tax year—must file if they meet income thresholds. However, they are taxed only on income earned during their period of residency, ensuring fair taxation based on their status.

Nonresident Filing Rules

Nonresidents earning income from Hawaiian sources must file a state tax return if their income exceeds the filing threshold of $1,144 for 2024, which matches the personal exemption amount. This includes income from employment, business activities, or rental properties within Hawaii.

Nonresidents report Hawaiian-sourced income using Form N-15. Deductions and credits are applied proportionally to Hawaiian income. For example, if a nonresident earns 30% of their total income from Hawaii, they can claim 30% of the available deductions and credits. This proportional system ensures fairness in tax assessments.

Tax Rates and Brackets

Hawaii employs a progressive tax system with twelve income brackets, ranging from 1.4% to 11%. This structure ensures taxpayers contribute based on their ability to pay. For instance, single filers with taxable income up to $2,400 are taxed at 1.4%, while those earning over $200,000 face the top rate of 11%.

Tax liability is calculated by applying the corresponding tax rate to each bracket of income. For example, a single filer earning $50,000 pays 1.4% on the first $2,400, 3.2% on income from $2,401 to $4,800, and so forth. This method allows taxpayers to benefit from lower rates on portions of their income.

Taxable Income Sources

Hawaii taxes a broad range of income types. In addition to wages and salaries, income from dividends, interest, and business activities is taxable. Business owners, including sole proprietors and partners, report profits from federal Schedule C or Schedule K-1, which are subject to state taxation.

Rental income is another significant category, especially given Hawaii’s real estate market. Taxpayers renting property must report rental income and can deduct expenses like mortgage interest and property taxes to determine net taxable income.

Deductions and Credits

Hawaii offers deductions and credits to reduce taxable income and incentivize specific activities, such as supporting dependents or promoting renewable energy.

Standard and Itemized Deductions

Taxpayers can choose between the standard deduction or itemizing deductions. For 2024, the standard deduction is $2,200 for single filers and $4,400 for married couples filing jointly. Itemizing may benefit those with significant deductible expenses, such as mortgage interest or medical costs. However, Hawaii caps itemized deductions for higher-income earners at $50,000 for single filers and $100,000 for joint filers to ensure equitable tax benefits.

Tax Credits

Hawaii’s tax credits reduce liability and align with policy goals. The Renewable Energy Technologies Income Tax Credit, for instance, incentivizes solar panel or wind system installations, offering a credit of up to 35% of the system’s cost, capped at $5,000 per property. The Food/Excise Tax Credit mitigates the regressive impact of Hawaii’s general excise tax on low- and moderate-income households, ranging from $25 to $85 per exemption. Proper documentation, such as receipts or certification forms, is required to claim these credits.

Deadlines and Payment Methods

Hawaii’s state income tax returns are due on April 20th, slightly later than the federal deadline of April 15th. Taxpayers can request a six-month extension by submitting Form N-101A, moving the filing deadline to October 20th. However, extensions apply only to filing, not payment. Taxes owed must be paid by April 20th to avoid penalties, which accrue at 5% per month, up to 25%.

Payments can be made electronically through Hawaii Tax Online, the state’s secure portal, or via check or money order using Form VP-1. For those unable to pay in full, Hawaii offers installment agreements through the Department of Taxation. Interest on unpaid balances accrues at an annual rate of 8%, so taxpayers are encouraged to pay as much as possible upfront to minimize additional costs.