Does Hawaii Tax Social Security?

State tax laws on retirement income differ widely across the country, affecting everything from Social Security benefits to pension payouts. Understanding a specific state’s tax structure is part of financial planning, as it influences a retiree’s net income and allows for more accurate budgeting during retirement.

Hawaii’s Tax Treatment of Social Security

Hawaii does not levy a state income tax on Social Security benefits. All Social Security income, including retirement and disability benefits, is fully exempt from Hawaii’s state income tax, regardless of a taxpayer’s total income level.

This state-level treatment is distinct from federal tax rules. The federal government may tax a portion of Social Security benefits depending on a retiree’s “combined income,” which includes adjusted gross income, nontaxable interest, and half of their Social Security benefits. If this combined income exceeds certain IRS thresholds, a percentage of the benefits becomes subject to federal income tax.

Taxation of Other Retirement Income in Hawaii

While Social Security is exempt, Hawaii’s tax treatment of other retirement income sources is more varied. The taxability depends on the specific type of account or plan from which the income is derived.

Pensions

Distributions from most public and private employer-funded pension plans are not subject to state income tax. This includes pensions for federal, state, and local government retirees. The exemption applies as long as the retiree did not make contributions to the pension plan; if employee contributions were made, a portion of the distributions may be taxable.

401(k)s and Traditional IRAs

Distributions from retirement savings accounts like 401(k)s and traditional Individual Retirement Arrangements (IRAs) are fully taxable in Hawaii. These withdrawals are treated as ordinary income and are subject to the state’s progressive income tax rates.

Roth IRAs

Qualified distributions from Roth IRAs are not taxed in Hawaii, which mirrors federal treatment. For a distribution to be qualified, the account must be open for at least five years, and the owner must be at least 59½ years old.

Hawaii Income Tax Brackets and Senior Exemptions

For retirement income that is taxable, such as 401(k) and traditional IRA distributions, Hawaii applies a progressive income tax structure with 12 brackets. Rates range from 1.4% on the lowest income levels to 11% for the highest earners, specifically those with taxable income over $200,000 for single filers.

Hawaii offers personal exemptions to reduce the overall tax burden. In addition to the standard personal exemption, the state provides an extra exemption for residents who are age 65 or older. The state’s tax filing deadline is April 20.