Hawaii payroll taxes: Your 2026 guide to staying compliant

Hawaii is renowned for its distinctive island economy, vibrant tourism sector, and close-knit business community. The state's real gross domestic product (GDP) was approximately $90.3 billion in 2024, with tourism, healthcare, and education among its largest industries. Hawaii is also home to many small businesses, from local restaurants to innovative startups. However, operating in paradise doesn't mean you can ignore your payroll obligations. Hawaii payroll taxes can be complex, and businesses must understand them to avoid costly penalties and remain compliant.

Let's explore Hawaii payroll taxes for employers, the legal risks of non-compliance, and how to keep your payroll process running smoothly.

Jump to:

• What are payroll taxes?
• Understanding Hawaii state payroll taxes
• Other important tax considerations
• Employer responsibilities for payroll taxes in Hawaii
• Filing payroll tax returns in Hawaii
• Common payroll tax mistakes in Hawaii (and how to avoid them)
• Leverage payroll software for compliance in Hawaii

What are payroll taxes?

Payroll taxes are taxes based on wages, salaries, or other compensation that both employers and employees must pay. While income taxes are also withheld through payroll, payroll taxes specifically fund programs like Social Security, Medicare, and unemployment insurance.

Understanding Hawaii state payroll taxes

When starting a business in Hawaii, you'll need to be familiar with both federal and state payroll taxes.

Federal payroll taxes

Payroll taxes are mandatory and encompass both federal and state requirements. 

Federal payroll taxes include:

• Federal income tax: This is withheld from each employee's paycheck based on their W-4 form and the current IRS tax brackets. You'll be responsible for calculating the correct amount, withholding it, and then sending it to the IRS.
• Social Security and Medicare taxes: Both of these taxes have a portion paid by the employee and a matching portion paid by you, the employer. For Social Security, the combined rate is 12.4% on the first $176,100 of wages in 2025. For Medicare, it's 2.9% on all wages, with an extra 0.9% for higher earners. You'll withhold the employee's portion and match it.
• Federal Unemployment Tax (FUTA): This is paid solely by you at a rate of 6% on the first $7,000 of each employee's wages. However, employers who timely pay their Hawaii unemployment taxes get a credit of up to 5.4 percentage points, reducing the rate to as low as 0.6%. The graphic below lists some best practices for managing your FUTA obligations.

Hawaii state payroll taxes

In addition to federal payroll taxes, Hawaii employers must account for several state-specific payroll taxes.

• Unemployment Insurance tax (UI): Hawaii payroll taxes for employers include a mandatory unemployment insurance tax, which provides temporary financial assistance to eligible workers who lose their jobs through no fault of their own. The Hawaii payroll tax rate for UI varies each year and depends on your company's experience rating.
• Employment & Training Fund (ETF) assessment: Hawaii employers are also required to pay a small Employment & Training Fund assessment. This tax supports workforce development and training programs across the state. The ETF rate is added to your UI tax rate and typically amounts to 0.01% of taxable wages.
• Temporary Disability Insurance tax (TDI): Hawaii is one of the few states that requires employers to provide Temporary Disability Insurance. This program offers partial wage replacement to employees unable to work due to non-work-related illness or injury. Employers can choose to pay the full cost or share it with employees through payroll deductions.
• State income tax withholding: Employers must withhold Hawaii state income tax from employee wages using the appropriate tax tables and Form HW-4. Rates vary based on employees' filing status and allowances.
• Prepaid Health Care Act: While not a tax, Hawaii's Prepaid Health Care Act requires most employers to provide eligible employees with health insurance coverage. This obligation makes understanding Hawaii payroll taxes and related laws even more important for compliance.

Hawaii local payroll taxes

Unlike some states, Hawaii does not have local payroll taxes imposed by individual counties or cities. Employers are only responsible for federal and state payroll taxes and related contributions required under Hawaii law.

However, it's still important to stay informed about any changes to Hawaii payroll taxes for employers that may affect your business.

1. Check with your local government to ensure you're aware of all current payroll tax obligations. Your city or county government directly can provide the most up-to-date information on applicable rates and regulations.
2. Consult a tax professional if you need clarification on local payroll tax requirements or assistance with compliance. An accountant specializing in Hawaii payroll taxes can help you identify any local taxes that apply to your business and ensure you meet all your obligations.

Other important tax considerations

Multiple locations

If your business has employees working in multiple cities or counties, you may be subject to different local payroll taxes for each location.

Changing rates

Local payroll tax rates can change over time, so it's important to stay informed about any updates that may affect your business.

Employer responsibilities for payroll taxes in Hawaii

As a Hawaii employer, you're responsible for managing a complex array of federal and state payroll taxes, which involves careful calculation, timely withholding, and accurate reporting to various government agencies. Here's an overview of tax basics for LLCs and large corporations alike.

Registering for payroll taxes

To comply with Hawaii state regulations, employers must register for payroll taxes before paying wages to employees. This registration is vital for managing obligations like unemployment insurance, withholding tax, and wage reporting. Here are the three steps you need to take:

• Get an Employer Identification Number (EIN): Before registering with the state, you'll need to obtain a Federal Employer Identification Number (EIN) from the IRS. This number uniquely identifies your business for federal tax purposes. You can apply for an EIN online through the IRS website.
• Complete Hawaii Employer Registration: Once you have your EIN, register your business with the Hawaii Department of Labor and Industrial Relations (DLIR) for unemployment insurance and other required contributions. Submit Form UC-1 (Report to Determine Liability) through the Hawaii Employer Web Portal. This step helps you meet your payroll tax obligations.
• Report New Hires: After hiring employees, report their information to the Hawaii Child Support Enforcement Agency within 20 days. This helps the state manage child support collections and maintain accurate employment records.

Calculating payroll taxes

Accurately calculating Hawaii payroll taxes is essential to avoid fines and maintain compliance. Here are a few ways to do this effectively:

• Check government websites: The Hawaii Department of Labor and Industrial Relations and the Hawaii Department of Taxation provide up-to-date tax rate information, forms, and resources to help you calculate the correct Hawaii payroll tax rate and withholdings.
• Use payroll software: Some small business software payroll programs have built-in Hawaii tax tables that automate calculations, saving you time and minimizing the chance for errors.
• Professional services: If you prefer to outsource payroll, a professional payroll service can handle everything for you.

Whichever method you choose, make sure you stay updated on the current tax rates and wage limits, as these can change every year.

Withholding state payroll taxes

Once you've calculated the taxes, you must withhold the correct amounts from your employees' paychecks. In Hawaii, this includes state income tax withholding and contributions for Temporary Disability Insurance (TDI). Unemployment Insurance (UI) is paid entirely by employers and is not withheld from employee wages.

Temporary Disability Insurance (TDI): Employers can choose to pay the entire TDI cost themselves or deduct up to half of the premium from employees' wages. The employee's share cannot exceed 0.5% of their weekly wages, up to a weekly cap set by the state.

• For example, if an employee earns $1,000 in gross wages for the week, the TDI deduction would be: $1,000 x 0.5% = $5, assuming the amount is within the weekly cap.

State Income Tax Withholding: Use the employee's completed Form HW-4 and the Hawaii withholding tax tables to calculate the correct amount to withhold. Hawaii does not offer a wage bracket method like some states; instead, you'll use the percentage method provided by the Hawaii Department of Taxation.

• For example, for a single employee earning $5,000 monthly with one allowance, the estimated Hawaii payroll tax rate for withholding might result in around $230 withheld per month, depending on the current tables.

Unemployment Insurance (UI): Employers pay Hawaii's UI tax directly — it is not withheld from employee wages. New employers typically pay the standard “new employer” Hawaii payroll tax rate, which can change each year. 

• For example, if the rate is 2.4% and an employee earns $5,000 per month, the employer pays $120 in UI tax for that month until the annual taxable wage base is met.

By applying these calculations to each paycheck, you ensure accurate withholdings and compliance with state requirements.

Remitting state payroll taxes

Next, you'll need to submit the taxes you've withheld from your employees, along with your employer contributions, to both the Hawaii Department of Taxation and the Hawaii Department of Labor and Industrial Relations (DLIR). The easiest ways to do this are through the Hawaii Tax Online portal for withholding taxes and the DLIR Employer Web Portal for unemployment insurance. Your filing frequency (monthly, quarterly, or annually) depends on your total tax liability and your payroll tax account status.

Filing payroll tax returns in Hawaii

In Hawaii, employers must comply with quarterly and annual payroll tax return requirements to meet both state and federal obligations. Here's a breakdown of 2025 requirements:

Quarterly requirements