Hawaii Withholding laws & compensation compliance analysis

Hawaii Withholding: What you need to know

Employers with one or more employees in Hawaii must deduct and withhold Hawaii state income taxes from employee's wages. Employers may use official wage bracket tables available from the Department of Taxation or the formula method of computation to determine the amount to be withheld each pay period.
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Wages subject to withholding. Withholding applies to:
• Wages of residents, regardless of where earned
• Wages of nonresidents for income earned in Hawaii
Hawaii conforms to the Internal Revenue Code.
Hawaii requires withholding from wages of certain agricultural and domestic employees who are exempt from federal withholding. Withholding applies to all wages, including cash payments such as salaries, commissions, and bonuses, as well as the market value of noncash payments such as meals, lodging, and goods. Meals and lodging provided for the employer's convenience are exempt from withholding.
Employers must obtain a Form HW-4, Withholding Exemption and Status Certificate, from each new employee showing the number of tax exemptions claimed. Employees should provide a new form HW-4 as soon as possible after a change in marital status or in the number of exemptions the employee is entitled to claim. A new form must be filed within 10 days for a reduction in the number of exemptions the employee may claim or a change in marital status that makes the employee ineligible to file a joint tax return.
There is no provision in Hawaii’s Income Tax Law for an employee to claim an exempt status for Hawaii income tax withholding. If an employee submits a Form HW-4 claiming to be exempt from Hawaii income tax withholding, the employer is to take the following action:
• Advise the employee that the ...

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