Hawaii Payroll Taxes: The Complete Employer Guide (2026)

If you employ people in Hawaii, you don't just deal with federal payroll taxes. You deal with at least five separate layers of payroll obligations - federal taxes, Hawaii state income tax withholding, unemployment insurance, temporary disability insurance, and prepaid health care - each with its own rates, forms, deadlines, and penalties. Miss one, and you're not just out of compliance; you're writing checks to the government that could have stayed in your business. This guide walks through every layer, with the actual 2026 rates, forms, and deadlines you need to run payroll correctly in Hawaii.

1. The Five Layers of Hawaii Payroll Tax

Before we go deep on each one, here's the big picture. Every time you run payroll in Hawaii, money flows to multiple agencies for multiple purposes. Understanding what you owe, to whom, and when is the foundation of compliant payroll.

2. Layer 1: Federal Payroll Taxes (FICA, FUTA, Withholding)

These apply to every employer in the United States, including Hawaii. They're the foundation layer.

FICA: Social Security and Medicare

FICA stands for the Federal Insurance Contributions Act. It funds Social Security and Medicare, and it's the largest payroll tax most employers deal with.

• Social Security tax: 6.2% on wages up to $184,500 (2026 wage base). The employer matches the employee's 6.2%, for a combined 12.4%.
• Medicare tax: 1.45% on all wages with no cap. The employer matches the employee's 1.45%, for a combined 2.9%.
• Additional Medicare tax: An extra 0.9% on employee wages exceeding $200,000 in a calendar year. This is employee-only - no employer match.

FUTA: Federal Unemployment Tax

The Federal Unemployment Tax Act (FUTA) funds the federal portion of unemployment benefits. Unlike FICA, FUTA is employer-only - employees don't pay it.

• Gross rate: 6.0% on the first $7,000 of each employee's wages per year
• State credit: Employers who pay their state UI tax on time receive a credit of up to 5.4%
• Effective rate: 0.6% (after the 5.4% credit) on the first $7,000 per employee
• Maximum per employee: $42/year ($7,000 x 0.6%)

Federal Income Tax Withholding

You withhold federal income tax from each employee's paycheck based on the information they provide on Form W-4. The W-4 was redesigned in 2020 and no longer uses the old "allowances" system - instead it captures filing status, multiple job adjustments, dependent credits, and additional withholding amounts.

You deposit these withheld taxes (along with FICA) to the IRS either monthly or semi-weekly, depending on your total tax liability:

• Monthly depositors: If you reported $50,000 or less in taxes during the lookback period (July 1, 2024 through June 30, 2025), deposit by the 15th of the following month.
• Semi-weekly depositors: If your lookback period liability exceeded $50,000, deposit by the following Wednesday for Wednesday-Friday pay dates, or by the following Friday for Saturday-Tuesday pay dates.
• Next-day depositors: If you accumulate $100,000 or more in tax liability on any day, deposit by the next business day.

File Form 941 quarterly to report wages, tips, and taxes withheld. File Form 940 annually for FUTA.

3. Layer 2: Hawaii State Income Tax Withholding

In addition to federal income tax, you must withhold Hawaii state income tax from employees who work in Hawaii. Hawaii has 12 tax brackets - one of the most graduated systems in the country - with rates ranging from 1.4% to 11%.

Hawaii Income Tax Brackets (2026, Single Filer)

Form HW-4: Hawaii's Own Withholding Certificate

This is one of the most important details for Hawaii employers: Hawaii uses its own withholding form, the HW-4, which is completely separate from the federal W-4. Every employee working in Hawaii needs to fill out both forms.

2026 Booklet A Update: New Withholding Allowance Amounts

Hawaii released updated withholding tables in Booklet A (2026) as part of the state’s phased individual income tax cut program. One figure changed sharply for withholding beginning January 1, 2026:

HW-14: Quarterly Withholding Return and Payments

You report Hawaii income tax withheld from employees on Form HW-14 (Withholding Tax Return), filed quarterly by the 15th day of the month after each quarter (April 15, July 15, October 15 and January 15). Payments follow a separate schedule based on your annual withholding liability: quarterly if it is $5,000 or less, monthly (by the 15th of the following month) if it is more than $5,000 but not more than $40,000, and semi-weekly if it exceeds $40,000.

• Example: For a monthly payer, taxes withheld from January wages are due by February 15.
• How to pay: File and pay electronically through Hawaii Tax Online (hitax.hawaii.gov).
• E-filing requirement: Employers whose annual Hawaii withholding tax liability exceeds $40,000 must file their withholding tax forms electronically.

Year-End: W-2s Instead of HW-3

Beginning with tax year 2020, Hawaii no longer requires Form HW-3, the old annual return and reconciliation. At year end, file copies of employee W-2s (or Forms HW-2) with the Department of Taxation by January 31, either uploaded through Hawaii Tax Online or on paper with transmittal Form HW-30.

4. Layer 3: Hawaii Unemployment Insurance (UI) Tax

Hawaii's unemployment insurance program is administered by the Department of Labor and Industrial Relations (DLIR). UI tax is paid entirely by the employer - no deductions from employee wages.

2026 UI Tax Rates and Wage Base

• New employer rate: 2.4% for 2026 (the assigned rate until your account has been chargeable with benefits for the 12 months before a December 31 rate computation date)
• Experience-rated range: 0% to 5.6%, based on your claims history
• Taxable wage base: $64,500 per employee in 2026 (Hawaii adjusts this annually based on average wages)
• Maximum annual UI cost per employee: Up to $3,612 (at the 5.6% maximum rate on $64,500)

UI Filing Requirements

• Form UC-B6: Quarterly Wage and Contribution Report. Filed quarterly with the DLIR.
• Due dates: April 30, July 31, October 31, and January 31 for Q1 through Q4 respectively.
• Registration: New employers must file a status report (register) with the DLIR within 20 days after hiring an employee. Register online at huiclaims.hawaii.gov.

5. Layer 4: Temporary Disability Insurance (TDI)

Hawaii is one of only five states (plus Puerto Rico) that mandates Temporary Disability Insurance. TDI provides partial wage replacement for employees who can't work due to a non-work-related illness or injury.

TDI Key Facts for 2026

• Benefit amount: 58% of the employee's average weekly wages, up to the current weekly maximum
• Waiting period: 7 consecutive days of disability before benefits begin
• Maximum duration: 26 weeks per disability period
• Who's covered: Most employees who have at least 14 weeks of Hawaii employment, each with 20 or more hours paid, and earned at least $400 in the 52 weeks before the disability

Cost Sharing

Unlike UI (employer-only), TDI costs can be shared between employer and employee:

• Employee deduction: Employers may deduct up to 0.5% of the employee's weekly wages (no more than $7.50 a week in 2026) to offset TDI premium costs
• Employer pays the rest: The employer is responsible for any premium cost above the employee deduction
• Coverage source: TDI coverage must be purchased from a private insurance carrier authorized to sell TDI in Hawaii, or through an approved self-insurance plan

Employer Obligations

• Obtain coverage: Secure a TDI policy from a private carrier before your first employee's start date
• Keep claim forms on hand: Employees get Form TDI-45 (Claim for TDI Benefits) from their employer and must file within 90 days of the start of the disability
• File notice of insurance: You or your carrier must file a notice of insurance with the Disability Compensation Division (DCD) within 30 days of buying the policy
• Maintain records: Keep payroll records showing TDI deductions for at least 6 years

6. Layer 5: Prepaid Health Care Act

Hawaii's Prepaid Health Care Act (PHCA), enacted in 1974, was the first state law in the nation requiring employers to provide health insurance. It predates the federal ACA by nearly 40 years and remains one of the most employee-friendly health coverage mandates in the country.

Who Must Be Covered

• Eligibility threshold: Employees who work 20 or more hours per week for 4 consecutive weeks and earn at least 86.67 times the Hawaii minimum wage a month ($1,387 a month in 2026)
• Coverage must begin: At the health plan's earliest enrollment date after the employee satisfies the 4-consecutive-week eligibility period
• Exemptions: Federal, state and county employees, insurance and real estate salespeople paid solely by commission, seasonal agricultural workers, and employees covered as a dependent under another qualified plan (waiver on Form HC-5) may be exempt

Cost Sharing

• Employee contribution cap: Employers may deduct up to 1.5% of the employee's monthly gross wages toward the health plan premium, but never more than half the premium
• Employer pays the rest: The employer pays at least half the premium and the full remaining cost, which is often the majority of the total premium
• Plan standards: The health plan must be approved by the DLIR Disability Compensation Division as meeting the law's benefit standards

PHCA vs. ACA

Hawaii employers often ask how the Prepaid Health Care Act interacts with the federal Affordable Care Act (ACA). Here's the short version:

• PHCA applies first: Any employee working 20+ hours/week for 4+ consecutive weeks who meets the monthly wage test must be covered under PHCA, regardless of the ACA's 30-hour/50-employee thresholds.
• ACA 1095 reporting: Employers with 50 or more full-time equivalent employees (FTEs) must still file ACA Forms 1094-C and 1095-C with the IRS. PDS handles 1095-C preparation and filing for clients who meet the 50-FTE threshold.
• Hawaii's PHCA exemption from certain ACA provisions: Hawaii received a limited exemption under the ACA that allows PHCA to continue operating alongside federal requirements without being preempted.

7. Workers' Compensation Insurance

While not technically a payroll "tax," workers' compensation is a mandatory employer cost in Hawaii that's closely tied to payroll.

• Who needs it: Every employer with one or more employees, regardless of whether they're full-time, part-time, or temporary
• What it covers: Medical expenses and partial wage replacement for employees injured on the job or who develop work-related illnesses
• Where to get it: Purchased from a private insurance carrier licensed in Hawaii, or through DLIR-approved self-insurance. Hawaii does not have a state fund.
• Cost: Varies by industry classification code and your claims history. High-risk industries (construction, agriculture) pay sharply more than low-risk office work.
• Employer-only cost: You cannot deduct workers' comp premiums from employee wages

8. Filing Deadlines & Deposit Schedules

This is the table you'll want to bookmark. Every major payroll filing and deposit deadline for Hawaii employers in one place.

9. Common Mistakes That Trigger Penalties

After 55+ years of processing Hawaii payroll, these are the mistakes that cost employers the most:

1. Using only the W-4, forgetting the HW-4. Hawaii requires its own withholding form. If you only collect the federal W-4, you'll withhold state taxes at the default rate (single, zero allowances), which usually means over-withholding - and frustrated employees. Or worse, you might not withhold Hawaii tax at all.
2. Depositing Hawaii withholding tax late. Payments are due by the 15th of the month after each monthly or quarterly period, or on the semi-weekly schedule for larger employers. If a return is filed on time but the tax is not paid within 60 days of the due date, the Department of Taxation can add up to 20% of the underpayment, plus interest at a rate of 2/3 of 1% per month.
3. Misclassifying employees as independent contractors. This avoids all payroll taxes - which is exactly why the IRS and Hawaii DLIR audit for it aggressively. If you're caught, you owe back taxes, penalties, and interest on every misclassified worker.
4. Falling behind on UI payments. Late UI tax payments draw a penalty of 10% (at least $100) plus interest, can raise your experience rate and, critically, reduce your FUTA credit if the UI is still unpaid when Form 940 is due. That 5.4% credit is worth real money.
5. Letting TDI or workers' comp coverage lapse. Even a single day without coverage exposes you to personal liability for any claims during the gap.
6. Missing a quarterly HW-14 return. Every employer files Form HW-14 each quarter, by the 15th day of the month after the quarter ends, even when no wages were paid. A late return adds 5% of the tax per month, up to 25%.
7. Not filing Form UC-B6 quarterly. Even if you had no payroll activity in a quarter, you must still file Form UC-B6 with the DLIR. A late report draws a $30 penalty, and failing to file can result in estimated assessments.

10. What PDS Handles for You

Pacific Data Services has been processing Hawaii payroll since 1969. Here's in particular what we manage so you don't have to:

• Payroll processing: Calculate gross-to-net pay for every employee, every pay period, including regular, overtime, and special compensation
• Federal tax deposits: FICA and federal income tax withholding deposited to the IRS on schedule (monthly or semi-weekly, as applicable)
• Hawaii withholding deposits: Withholding paid on your required schedule and HW-14 returns filed quarterly with the Hawaii Department of Taxation
• Quarterly filings: Form 941 (federal), Form UC-B6 (Hawaii UI) prepared and filed quarterly
• Annual filings: Form 940 (FUTA), W-2s and W-3s, and Hawaii W-2 filing - all prepared, filed, and distributed
• ACA 1095-C reporting: For clients with 50+ full-time equivalent employees, we prepare and file 1095-C forms
• Direct deposit: Employee paychecks deposited directly to their bank accounts
• TDI and PHCA deductions: We calculate and process the employee payroll deductions for TDI (up to 0.5%) and Prepaid Health Care (up to 1.5%)

Managing all five layers of Hawaii payroll tax - HW-14, FICA, UI, TDI, and state income tax - is where most small business owners run into trouble. Many choose to work with a Hawaii payroll service that handles every deposit, filing, and reconciliation automatically.