Hawaii Governor Josh Green signed into law H.B. 2404, which increases the standard deduction every two years through 2031 and raises the income tax limits that apply to the income tax brackets in tax years 2025, 2027 and 2029. The income tax withholding formula and withholding tables will first be adjusted to reflect the law change for tax year 2025 (no withholding changes apply to tax year 2024). (Hawaii Department of Taxation Announcement 2024-03.)

Governor Green explained that increasing the standard deduction benefits low- and medium-income households while the amendments to the income tax limits will gradually eliminate the lowest income brackets and reduce the tax rates for all income brackets.

Governor Green stated that due to this historic tax reform, the state income taxes paid by working class families will fall 71% by 2031 and "will help Hawaii transition from being the second highest-taxed state for working families to the fourth lowest."

Increase in standard deductions 2024—2031

Change in income limits 2025—2029

*Note that for withholding tax purposes, the top tax rate and income tax limit is lower than specified by law. For instance, for 2025, the top income limit is $250,000 with a tax rate of 7.9% while the law specifies a top income limit of $650,000 with a top tax rate of 11%.

Tax year 2025 withholding formula and tables released

The Hawaii Department of Taxation (Department) announced on December 4, 2024, that Hawaii Revised Statutes Section 18-235-61-06, amended to reflect the changes under H.B 2404, is available on the Department's website.

Accordingly, Booklet A, Employer's Tax Guide, is updated and available for tax year 2025 and includes the modified withholding formula and tax tables that will apply with wages paid on or after January 1, 2025.

The law does not allow a supplemental rate of withholding for bonuses, equity compensation and other irregular wage payments.

The Department will be updating Form HW-4, Employee's Withholding Allowance and Status Certificate, for 2025 and once available it will be published here. (Hawaii Department of Taxation Announcement 2024-03.)

Ernst & Young LLP insights

Employers should consider informing their Hawaii employees about the changes in the state's personal income tax law and encourage employees to review their HW-4 for 2025.