In 2024, Governor Josh Green, M.D., and the Hawai‘i Legislature passed Act 46, marking the largest income tax cut in the state’s history. This significant new law will gradually adjust the state’s income tax structure from 2024 to 2031, benefiting Hawaii’s residents with a reduction in the amount of income tax withheld from their paychecks.
Starting January 2025, employees will notice less tax being deducted from their paychecks, resulting in an immediate increase in their take-home pay. This adjustment is the first of many, with annual updates to the withholding tables scheduled through 2031. The change aims to provide long-term relief, with the most notable impacts being felt over the next several years.
Key Details of Act 46
- Effective Date: The changes will take effect with the 2024 tax year.
- Gradual Adjustments: The standard deduction will increase over time, with adjustments in 2024, 2026, 2028, 2030, and 2031, while income tax brackets will be updated in 2025, 2027, and 2029.
- Annual Withholding Adjustments: From January 2025, annual changes to withholding tables will ensure workers see steady increases in their take-home pay each year.
How Will This Affect Employees?
Employees will not need to take action to receive the benefits of this tax cut. The Department of Taxation has already updated the withholding tables, and employers are required to adjust the amount of tax withheld from employee paychecks starting January 1, 2025.
While the adjustments will provide immediate relief, the full tax benefit will likely be more noticeable when individuals file their taxes. Many will also receive a larger refund as a result of the law. Those who prefer a smaller withholding amount may adjust their allowances with their employer.
When Will the Changes Be Noticed?
Employers have been instructed to begin adjusting withholdings on January 1, 2025. Employees should expect to see the reduction reflected in their paychecks by late January or early February 2025. Anyone who does not see the change should contact their employer to resolve the issue.
How Much Will Paychecks Change?
The adjustment to withholding amounts depends on an individual’s income. Below are examples of how different income levels will be affected:
- $25,000 annual wage: A reduction of $24.57 bi-monthly, or $589.68 annually
- $50,000 annual wage: A reduction of $32.99 bi-monthly, or $791.78 annually
- $75,000 annual wage: A reduction of $36.44 bi-monthly, or $874.56 annually
- $100,000 annual wage: A reduction of $39.56 bi-monthly, or $949.44 annually
What Employers Need to Know
Employers are advised to review the updated Booklet A – Employer’s Tax Guide for 2025, which includes revised formulas and income tax withholding tables. This guide is available for download on the Department of Taxation’s website at tax.hawaii.gov/forms.
Employers can contact the Department of Taxation’s technical section at 808-586-1530 or via email at tax.technical.section@hawaii.gov for further assistance.
A New Chapter in Tax Relief
With Act 46, Hawaii residents can look forward to a historic reduction in their tax burden, starting in 2025 and continuing for years to come. The law provides immediate financial relief while gradually increasing over time, helping residents keep more of their earnings and easing the financial pressure on families throughout the state.
Copies Available
Copies of the updated Booklet A and other related materials may also be obtained in person at:
Department of Taxation
Taxpayer Services – 1st Floor
830 Punchbowl Street
Honolulu, Hawai‘i