Payroll Tax in Hawaii: Complete Guide 2026
Data Notice: Figures, rates, and statistics cited in this article are based on the most recent available data at time of writing and may reflect projections or prior-year figures. Always verify current numbers with official sources before making financial, medical, or educational decisions.
Payroll Tax in Hawaii: Complete Guide 2026
Tax information is for educational purposes only and does not constitute tax advice. Consult a licensed tax professional for your specific situation.
Hawaii imposes a distinctive set of payroll obligations that set it apart from every other state. In addition to state income tax withholding and standard unemployment insurance, Hawaii is one of only a handful of states that mandates Temporary Disability Insurance (TDI) and is the only state that requires employers to provide Prepaid Health Care (PHC) coverage — a mandate that predates the federal Affordable Care Act by decades. These combined obligations create one of the more complex and costly payroll environments in the country, particularly for small businesses in the state’s tourism-driven economy.
Hawaii Payroll Tax Rates (2026)
| Tax | Rate | Paid By | Wage Base |
|---|---|---|---|
| State Income Tax Withholding | ~1.4% to ~11.0% (progressive) | Employee | All wages |
| State Unemployment Insurance (SUI) | ~0.2% to ~5.8% | Employer | First ~$59,100 per employee |
| Temporary Disability Insurance (TDI) | ~0.5% of wages (max) | Employee (employer may share) | Covered wages up to ~$1,179.36/week |
| Prepaid Health Care (PHC) | Varies by plan | Employer (primarily) | Employees working ~20+ hrs/week |
| Federal FICA — Social Security | ~6.2% each | Employer + Employee | First ~$168,600 |
| Federal FICA — Medicare | ~1.45% each | Employer + Employee | No cap |
| Additional Medicare (high earners) | ~0.9% | Employee only | Wages over ~$200,000 |
Hawaii’s state income tax has ~12 brackets, with the top marginal rate of approximately ~11.0% applying to taxable income above approximately ~$200,000 (single filers). This is among the highest state income tax rates in the nation.
How Hawaii Payroll Tax Works
State Income Tax Withholding
Hawaii uses a progressive income tax system with approximately ~12 brackets ranging from ~1.4% to ~11.0%. Employers withhold based on employees’ Form HW-4 elections (the state equivalent of the federal W-4). The broad bracket structure means most employees in Hawaii’s service and tourism industries fall in the ~5.5% to ~7.6% effective withholding range. Hawaii taxes all forms of compensation, including wages, salaries, bonuses, and most fringe benefits.
State Unemployment Insurance (SUI)
Employers pay SUI on the first approximately ~$59,100 of each employee’s annual wages. New employers receive an assigned rate, typically around ~2.4% to ~3.0%, for their first year. After developing experience history, rates range from approximately ~0.2% to ~5.8% based on the employer’s reserve ratio. Hawaii’s wage base of approximately ~$59,100 is substantially higher than the federal minimum of ~$7,000, increasing the per-employee cost of unemployment insurance. An employer at ~2.0% pays approximately ~$1,182 per employee, compared to roughly ~$140 in a state with a ~$7,000 wage base.
Temporary Disability Insurance (TDI)
Hawaii mandates TDI coverage that provides wage replacement benefits to employees who cannot work due to non-work-related illness or injury (work-related disabilities are covered by workers’ compensation). The employee contribution is capped at approximately ~0.5% of covered wages, with a weekly wage ceiling of approximately ~$1,179.36. Maximum weekly benefits are approximately ~$765. Employers may either purchase TDI coverage through an approved insurance carrier, self-insure, or use the State Disability Insurance plan. Employers are not required to contribute to TDI, but many do share the cost or cover it entirely as a benefit. Hawaii’s TDI program has been in effect since 1969.
Prepaid Health Care Act (PHC)
Hawaii’s Prepaid Health Care Act of 1974 is unique in the United States. It requires employers to provide health insurance to employees who work ~20 or more hours per week for ~4 consecutive weeks and earn at least ~86.67% of the state minimum wage. Employers must pay at least ~50% of the premium cost, and the employee’s share cannot exceed ~1.5% of their gross monthly wages. Approved plans must provide benefits at least equivalent to the plan that was prevalent in Hawaii in 1974, which includes hospital, surgical, medical, and maternity coverage. The Disability Compensation Division of the Department of Labor and Industrial Relations administers the PHC mandate.
The PHC mandate means that virtually all regular employees in Hawaii receive employer-provided health insurance, regardless of employer size. This predates the ACA’s employer mandate by approximately ~40 years and covers a broader set of employees (no ~50-employee threshold).
Workers’ Compensation
Hawaii requires workers’ compensation insurance for all employers, with no minimum employee count. Premiums vary by industry classification and claims experience. Rates range from approximately ~$0.15 to over ~$4.00 per ~$100 of payroll depending on the risk class. The tourism, construction, and agriculture sectors carry the highest rates.
Comparison to Other States
| Metric | Hawaii | California | New York | National Avg. |
|---|---|---|---|---|
| Top income tax rate | ~11.0% | ~13.3% | ~10.9% | ~5.0% |
| SUI taxable wage base | ~$59,100 | ~$7,000 | ~$12,800 | ~$16,000 |
| Mandatory TDI | Yes | Yes (SDI) | Yes (DBL) | ~5 states |
| Mandatory employer health care | Yes (PHC) | No (ACA only) | No (ACA only) | Hawaii only |
| Est. total employer cost per ~$50K employee | ~$6,200 | ~$5,800 | ~$5,400 | ~$4,300 |
Hawaii’s combination of high income tax withholding, mandatory TDI, and the unique PHC health care requirement creates the highest estimated total payroll burden among all states when employer health care costs are included.
Tips for Minimizing Payroll Tax Burden
- Manage SUI experience ratings actively. With a ~$59,100 wage base, each percentage point in rate matters. Contest improper unemployment claims promptly and invest in employee retention to keep your reserve ratio favorable.
- Shop PHC plans competitively. The Prepaid Health Care Act requires coverage but allows employers to choose among approved carriers. Comparing plans annually can yield savings of ~10-15% on premiums.
- Understand the TDI employee contribution cap. Employees pay no more than ~0.5% of covered wages toward TDI. Ensure your payroll system applies the weekly wage ceiling correctly to avoid over-withholding.
- Track the ~20-hour PHC threshold. Employees working fewer than ~20 hours per week are exempt from the PHC mandate. Monitor scheduling carefully, as crossing the threshold triggers coverage obligations.
- File quarterly returns on time. Late SUI and TDI filings incur penalties. Use the Hawaii Department of Labor’s online filing system for accurate, timely submissions.
- Review workers’ compensation classifications annually. Misclassification is common in Hawaii’s diverse economy (tourism, agriculture, construction, retail). Request a rate review if your operations have changed.
- Consider the total compensation picture. Hawaii’s mandatory health care benefit is a significant cost, but it also means employees receive comprehensive coverage, which can reduce other benefit demands and improve recruitment in a tight labor market.
Key Takeaways
- Hawaii is the only state requiring employers to provide health insurance under its Prepaid Health Care Act, covering employees working ~20+ hours per week
- State income tax withholding ranges from ~1.4% to ~11.0% across approximately ~12 brackets, among the highest in the nation
- The SUI taxable wage base of approximately ~$59,100 is substantially above the national average of approximately ~$16,000
- Mandatory TDI provides wage replacement for non-work-related disability, funded primarily by employee contributions capped at approximately ~0.5%
- Estimated total employer cost per ~$50,000 employee is approximately ~$6,200 when PHC premiums are included, the highest among all states
- The PHC mandate has been in effect since 1974, predating the federal ACA employer mandate by approximately ~40 years
Next Steps
- See the full state picture at Federal Income Tax Guide 2026
- Learn about federal payroll obligations in the Self-Employment Tax Guide
- Compare state tax burdens at State Income Tax Rates Comparison 2026
- Calculate your federal bracket with the Tax Bracket Calculator 2026
- Get local help: Find a CPA Near You