Hawaii Governor Josh Green has approved S.B. 3125 (Act 24, 2026), which, effective January 1, 2027, implements a personal income tax rate of 13% on taxable income exceeding $1 million in a calendar year while preserving much of the individual income tax relief enacted under Hawaii's 2024 tax reform legislation for lower- and middle-income taxpayers. The legislation modifies certain future income tax bracket changes while retaining significant taxpayer benefits enacted under prior law.

Background

In 2024, Hawaii enacted H.B. 2404 (Act 46), a comprehensive individual income tax relief package that increased standard deduction amounts and expanded personal income tax brackets through a phased implementation extending through 2031. The legislation was designed to reduce income tax burdens for Hawaii residents and address the state's affordability challenges. (See Tax Alert 2024-2325.)

Act 46 provided for phased increases in standard deduction amounts beginning in tax year 2024 and continuing through 2031, while separate phased expansions of the state's income tax brackets were scheduled to take effect in tax years 2025, 2027 and 2029.

During the 2026 legislative session, lawmakers revisited the scheduled future tax reductions amid concerns about the long-term fiscal impact of Act 46. S.B. 3125 was enacted as a compromise intended to preserve tax relief for most Hawaii taxpayers while increasing revenues from higher-income individuals and modifying certain future bracket adjustments. (Press release, Governor Josh Green, 5-1-2026.)

Standard deduction increases continue through 2031

In addition to S.B. 3125, Hawaii lawmakers enacted H.B. 2329 (Act 35, 2026), which retains the phased-in standard deduction increases previously established under Act 46, allowing taxpayers to continue benefiting from substantially larger standard deductions through tax year 2031.

Ernst & Young LLP insights

Hawaii joins five other states that have imposed an income tax surcharge on millionaires: California (effective January 1, 2005), Maine (effective January 1, 2026), Massachusetts (effective January 1, 2023), Rhode Island (effective January 1, 2027) and Washington (effective January 1, 2028).