Hawaii Payroll Taxes: A Complete Guide for Employers

If you thought federal payroll taxes were complicated, welcome to Hawaii. We've seen firsthand that this is one of the most complex payroll tax environments in the entire country. Between state income tax withholding, unemployment insurance, the Hawaii-specific Temporary Disability Insurance program, and the mandatory Prepaid Health Care Act, there's a lot to keep track of. This guide breaks it all down so you know exactly what you owe and when.

Federal vs. State Payroll Taxes

Every employer in the U.S. has federal payroll tax obligations: FICA (Social Security and Medicare), FUTA (Federal Unemployment), and federal income tax withholding. Hawaii adds its own layer on top of those requirements - and then some. Hawaii runs programs that mainland employers have never encountered.

Hawaii State Income Tax Withholding

Hawaii has a progressive state income tax with twelve tax brackets - one of the most complex in the nation. Rates range from 1.4% to 11% depending on income. As an employer, you're required to withhold the appropriate amount from each employee's paycheck and remit it to the Hawaii Department of Taxation.

How to Calculate Withholding

Use the Hawaii withholding tax tables published by the Hawaii Department of Taxation in Booklet A, Employer's Tax Guide. Employees complete Form HW-4 (the Hawaii equivalent of the federal W-4) to claim their withholding allowances. Unlike the federal W-4 (which was overhauled in 2020), Hawaii's HW-4 still uses the traditional allowance-based system.

Filing and Remitting

• Deposits (Form VP-1): Quarterly if your annual Hawaii withholding is $5,000 or less; monthly, by the 15th of the following month, if it is over $5,000 up to $40,000; semiweekly by EFT if it exceeds $40,000 (or if you are a federal semiweekly depositor).
• Return (Form HW-14): Filed quarterly by the 15th day of the month after the quarter ends — April 15, July 15, October 15, and January 15.
• Year-end: Give employees Form HW-2 or W-2 and file the state copies with the Department of Taxation by January 31 (paper filers include transmittal Form HW-30). Form HW-3 has not been required since tax year 2020.

2026 Booklet A Update: Withholding Allowance Amounts

Hawaii released updated withholding tables in Booklet A (2026). If you are still using 2025 figures, your withholding calculations are out of date. The key changes:

The extra lump sum withholding allowance is subtracted from every employee's annualized wages before the tax rates are applied (for example, $83.65 per weekly paycheck or $181.25 per semimonthly paycheck in 2026). The jump from $1,650 to $4,350 is significant and lowers withholding for most employees. Employers using manual calculations or older payroll software templates need to verify their settings reflect the 2026 Booklet A tables. Source: Hawaii Department of Taxation: Payroll Updates.

The $40,000 threshold still applies in 2026: employers whose annual Hawaii withholding exceeds $40,000 must deposit semiweekly by EFT and file Forms HW-14 and HW-2 electronically (a 2% penalty applies for failing to do so). Also new for 2026, any employer filing 10 or more Forms W-2 or HW-2 must file them electronically (Tax Announcement 2025-05).

Unemployment Insurance (UI) Tax

Hawaii's Unemployment Insurance (UI) tax is paid entirely by the employer - employees don't contribute. The tax applies to a portion of each employee's wages, known as the taxable wage base.

Key UI Tax Facts for 2026

• Taxable wage base: $64,500 per employee for 2026 (adjusted annually by the DLIR)
• Tax rate range: 0.0% to 5.6% for 2026 (Schedule C, depending on your experience rating), plus a 0.01% Employment and Training assessment when your rate is above zero
• New employer rate: 2.40% for 2026
• Payment frequency: Quarterly (due by the last day of the month following the end of the quarter)

Experience Rating

Your UI tax rate is determined by your "experience rating" - in practice, your claims history. If few of your former employees have filed for unemployment, your rate goes down. If you've had significant layoffs, your rate goes up. This is why minimizing unnecessary separations can save real money over time.

How to Register

Register with the Hawaii Department of Labor and Industrial Relations (DLIR) online at uiclaims.hawaii.gov when you first hire employees (paper Form UC-1 is no longer accepted). You'll receive a UI account number and your assigned rate. File quarterly using Form UC-B6. Don't forget to also complete new hire reporting within 20 days of each hire.

Temporary Disability Insurance (TDI)

This is one of Hawaii's most distinctive requirements - and the one that surprises employers most when they first set up operations here. Hawaii is one of only a handful of states with a mandatory temporary disability insurance program, and it's been in place since 1969.

What TDI Covers

TDI provides partial wage replacement to employees who are temporarily unable to work due to a non-work-related illness or injury (work-related injuries are covered by workers' compensation). It covers things like surgery recovery, serious illness, and pregnancy-related disability too. For more on leave benefits, see our Hawaii paid leave laws guide.

Who Must Be Covered

Every employer with one or more employees must provide TDI coverage. An employee qualifies for benefits after at least 14 weeks with 20 or more hours of paid work each week and at least $400 in wages during the 52 weeks before the disability (HRS §392-25).

Benefit Details

• Benefits equal 58% of the employee's average weekly wage, up to a state maximum ($871 per week for 2026)
• Benefits begin after a 7-day waiting period (the first 7 days of disability are not covered)
• Maximum benefit period: 26 weeks per disability

How to Provide Coverage

You have two main options: (1) buy a TDI policy from an authorized insurance carrier, or (2) self-insure with DLIR approval (Form TDI-15). Coverage under a qualifying collective bargaining agreement also counts. Premiums are paid to your carrier; the State does not collect a disability tax. Most small employers use a carrier.

Cost Sharing

Employers can require employees to contribute up to half the cost of TDI premiums, but the employee's contribution cannot exceed 0.5% of their weekly wages — for 2026, at most $7.50 per week (0.5% of the $1,500.21 maximum weekly wage base). Many employers pay the full premium as a benefit.

Prepaid Health Care Act

The Hawaii Prepaid Health Care Act (PHCA) is perhaps the most significant and uniquely Hawaiian employer requirement. Enacted in 1974, it requires virtually all Hawaii employers to provide health insurance coverage to eligible employees - something that doesn't exist as a mandate in any other state (the Affordable Care Act has its own rules, but Hawaii's PHCA predates the ACA and is actually more expansive in some ways).

Which Employees Must Be Covered

Employees who work 20 or more hours per week for 4 consecutive weeks must be offered health insurance. This covers many part-time workers who wouldn't qualify under ACA provisions. See our dedicated Hawaii health insurance requirements guide for full details.

Minimum Coverage Requirements

The health plan must meet minimum requirements set by the Hawaii DLIR, including coverage for hospital, medical, and surgical care. The exact minimum benefit package is defined in the PHCA regulations.

Employee Contribution Limits

Employees cannot be required to pay more than half of the premium, and never more than 1.5% of their monthly wages. The employer must cover the rest. This is a significant cost for many small businesses - but it's the law.

Exemptions

• Employees covered by a collective bargaining agreement that provides equivalent benefits
• Certain government employees
• Employees of federal contractors covered by equivalent federal plans

Workers' Compensation Insurance

Hawaii requires workers' compensation coverage for all employees, including part-timers. Workers' comp is not technically a "payroll tax" - it's an insurance premium paid to a carrier - but it's closely tied to payroll because premiums are calculated as a percentage of payroll by job classification. See our dedicated Workers' Compensation guide for full details.

Filing & Deposit Schedules Summary

Keeping track of all your Hawaii payroll obligations requires a solid calendar. Here's a quick overview:

• State income tax withholding: Deposits quarterly, monthly (15th of following month), or semiweekly depending on annual liability; Form HW-14 filed quarterly
• UI tax: Quarterly (last day of month following quarter end)
• TDI premiums: Per your carrier's billing schedule (typically monthly)
• Prepaid Health Care: Per your carrier's billing schedule (monthly)
• Annual W-2 / HW-2: To employees and to the Department of Taxation by January 31 (Form HW-3 no longer required)

Why Most Hawaii Businesses Use a Payroll Service

After reading through all of the above, you can see why Hawaii employers rarely manage payroll entirely in-house. Between the state-specific programs (TDI, PHCA), the multi-bracket income tax withholding, and the quarterly UI filings, there are a lot of moving parts - any one of which can result in penalties if missed.

a professional local Hawaii payroll service that specializes in Hawaii will:

• Calculate and remit all state and federal payroll taxes on your behalf
• Handle TDI enrollment and premium deductions
• Track PHCA eligibility and manage enrollment timing
• File all required returns (HW-14, UC-B6, W-2s/HW-2s)
• Alert you to rate changes and filing deadlines
• Provide documentation if you're ever audited

For most Hawaii small businesses, the cost of a payroll service is far less than the time, stress, and risk of managing everything yourself.

Frequently Asked Questions

What payroll taxes does a Hawaii employer need to withhold from employees?

Hawaii employers withhold two primary taxes from employee paychecks: federal income tax (based on the W-4) and Hawaii state income tax (based on the HW-4, Hawaii's equivalent form). Also, FICA taxes — Social Security at 6.2% and Medicare at 1.45% — are split equally between employer and employee. TDI contributions may also be partially withheld.

What is Hawaii's state income tax withholding rate?

Hawaii uses a progressive income tax rate structure ranging from 1.4% to 11%, one of the highest top marginal rates in the country. Employers use the withholding tables in Hawaii's Booklet A (updated for 2026) to calculate the correct withholding based on the employee's HW-4 allowances and pay frequency.

What is Form HW-14 and when does a Hawaii employer file it?

Form HW-14 is Hawaii's (Quarterly) Withholding Tax Return. It is filed every quarter, by the 15th day of the month after the quarter ends (April 15, July 15, October 15, January 15). Withheld tax is paid separately with Form VP-1: quarterly if your annual Hawaii withholding is $5,000 or less, monthly (by the 15th of the next month) if it is over $5,000 up to $40,000, and semiweekly by EFT if it exceeds $40,000. Employers over $40,000 must also file HW-14 and HW-2 electronically.

How does Hawaii unemployment insurance tax work for employers?

Hawaii employers pay UI tax on the first $64,500 of each employee's wages (2026 taxable wage base). New employers start at a rate of 2.40%; for 2026 (Schedule C) experience rates range from 0.0% to 5.60%, plus a 0.01% Employment and Training assessment when the rate is above zero. After the first years, rates are adjusted based on the employer's experience rating — how many former employees filed claims. The UI tax is an employer-only obligation; employees are not required to contribute.