Hawaii payroll involves five overlapping layers: federal income tax withholding, FICA, Hawaii state income tax withholding, UI tax, and FUTA — plus mandatory employer programs including TDI, workers' comp, and Prepaid Health Care. Get one layer wrong and you're exposed to penalties on all of them.
What’s in This Guide
- Hawaii Payroll: The Five Layers
- Federal Payroll Taxes
- Hawaii State Income Tax
- Unemployment Insurance (UI) Tax
- Temporary Disability Insurance (TDI)
- State-mandated prepaid health care
- Workers' Compensation
- Pay Stub Requirements
- W-2s, 1099s & Year-End Filing
- Key Deadlines
- Penalties for Getting It Wrong
- Why Hawaii Businesses Choose PDS
1. Hawaii Payroll: The Five Layers
Hawaii payroll isn't complicated because it's hard to understand — it's complicated because there are five separate tax layers, all running at the same time, plus mandatory insurance programs on top. Most mainland payroll software handles federal just fine. The Hawaii-specific pieces are where things go sideways.
| Layer | What It Is | Who Pays | Frequency |
|---|---|---|---|
| Federal Withholding | Employee's federal income tax | Employee (withheld by employer) | Each paycheck |
| FICA (SS + Medicare) | Social Security & Medicare taxes | 50/50 split employer/employee | Each paycheck |
| FUTA | Federal unemployment tax | Employer only | Quarterly |
| Hawaii Income Tax | State income tax withholding | Employee (withheld by employer) | Each paycheck |
| Hawaii UI Tax | State unemployment insurance | Employer only | Quarterly |
2. Federal Payroll Taxes
Federal payroll taxes apply to every employer in every state, including Hawaii. They include three components:
Federal Income Tax Withholding
Employers must withhold federal income tax from each employee's paycheck based on the employee's W-4 form (Employee's Withholding Certificate). The amount withheld depends on the employee's filing status, the adjustments entered on the W-4 (the current form has no allowances), and wage level. Withholding tables are published annually by the IRS in Publication 15-T.
FICA: Social Security and Medicare
The Federal Insurance Contributions Act (FICA) requires both the employer and employee to contribute:
- Social Security: 6.2% from the employee + 6.2% employer match = 12.4% total (applies up to the Social Security wage base: $184,500 for 2026)
- Medicare: 1.45% from the employee + 1.45% employer match = 2.9% total (no wage base limit)
- Additional Medicare Tax: 0.9% withheld from employees earning over $200,000 (no employer match)
FUTA: Federal Unemployment Tax
Employers pay FUTA at 6.0% on the first $7,000 of each employee's wages. Employers who pay their state unemployment taxes on time receive a credit of up to 5.4%, reducing the effective FUTA rate to 0.6%. Hawaii employers generally qualify for this credit.
3. Hawaii State Income Tax Withholding
Hawaii has its own income tax withholding system that operates separately from federal withholding. Key details:
HW-4 Form
Employees complete the HW-4 (Employee’s Withholding Allowance and Status Certificate) — Hawaii's equivalent of the federal W-4. This is a separate form; the federal W-4 does not substitute for the HW-4. All new employees must complete an HW-4 before their first paycheck. If no HW-4 is on file, withhold as if the employee were single with no withholding allowances.
Hawaii Income Tax Rates (2026)
Hawaii has one of the most progressive income tax structures in the country, with 12 brackets ranging from 1.4% to 11%. For 2025 and 2026, the top rate of 11% applies to taxable income over $325,000 for single filers ($650,000 for joint). Payroll withholding uses separate tables: the 2026 withholding tables in Booklet A run from 1.4% to 7.9%.
HW-14: Hawaii Withholding Tax Return
Every Hawaii employer files Form HW-14 quarterly, by the 15th of the month after each quarter (April 15, July 15, October 15, January 15). Withholding payments go in with Form VP-1 on a schedule set by your annual Hawaii withholding: quarterly if it is $5,000 or less, monthly (by the 15th of the following month) if it is more than $5,000 but not more than $40,000, and semi-weekly if it is more than $40,000.
Year-End Transmittal: HW-30
At year-end, employers send Copy A of Forms HW-2 (or Copy 1 of federal W-2s) to the Hawaii Department of Taxation by January 31. Paper filers attach Form HW-30 (Employer’s Annual Transmittal of Hawaii Income Tax Withheld from Wages); electronic filers upload through Hawaii Tax Online and need no HW-30. Effective January 1, 2026, employers filing 10 or more W-2s must file electronically. Hawaii no longer uses the old HW-3 reconciliation; corrections are made by amending the HW-14 for the affected quarter.
4. Hawaii Unemployment Insurance (UI) Tax
Hawaii's Unemployment Insurance program is administered by the Hawaii Department of Labor and Industrial Relations (DLIR). All covered employers must register and pay UI tax.
Who Must Pay
Any employer with one or more employees working in Hawaii is covered, even for part of a day. New employers must register with DLIR’s Unemployment Insurance Division within 20 days after employment begins.
Tax Rates
New employers pay 2.4% in 2026 until they have enough history to be experience-rated. After that, your rate depends on your own account: the contributions you have paid compared with the benefits charged against you. Under the 2026 rate schedule (Schedule C), rates range from 0.0% to 5.6%, plus a 0.01% Employment and Training assessment. The taxable wage base for 2026 is $64,500 per employee.
Filing: UC-B6
UI tax is reported and paid quarterly using Form UC-B6, due by the last day of the month following the quarter end (April 30, July 31, October 31, January 31).
5. Temporary Disability Insurance (TDI)
Hawaii is one of the few states that require employers to provide Temporary Disability Insurance. TDI covers employees who are unable to work due to a non-work-related illness, injury, or pregnancy.
Who Qualifies for Benefits
An employee qualifies for benefits after at least 14 weeks of Hawaii employment, in each of which they were paid for 20 or more hours, with at least $400 in wages in the 52 weeks before the disability. The weeks need not be consecutive or with one employer.
What TDI Pays
58% of average weekly wages, up to a maximum of $871 per week in 2026, beginning on the 8th day of disability, for up to 26 weeks.
Cost Sharing
Employers can deduct up to half the cost from eligible employees, but no more than 0.5% of weekly wages — a maximum of $7.50 per week in 2026 (0.5% of the $1,500.21 weekly wage base). The employer pays the remainder. Some employers absorb the full cost as a benefit.
How to Get Coverage
Purchase a policy from an authorized TDI insurance carrier, or self-insure with approval from DLIR’s Disability Compensation Division. There is no state-run TDI plan. PDS works with your TDI carrier to confirm deductions are correctly calculated and withheld each pay period.
6. State-mandated prepaid health care
Enacted in 1974, Hawaii's Prepaid Health Care Act was the first employer health insurance mandate in U.S. history — predating the ACA by 36 years. It requires employers to provide qualifying health insurance to eligible employees.
Employers are responsible for setting up and maintaining this coverage through an approved health insurance carrier.
Who Is Covered
Employees who work 20 or more hours per week AND earn a monthly wage of at least 86.67 times the current Hawaii minimum hourly wage ($1,387 in 2026) must be covered after four consecutive weeks of employment.
Employee Cost Cap
The employer pays at least half of the premium, and the employee's share cannot exceed 1.5% of gross wages. If half the premium is more than 1.5% of wages, the employer absorbs the difference. This is stricter than the ACA's affordability standard.
Approved Carriers
Coverage must come from a health care contractor approved under the Prepaid Health Care Act. The major carriers in Hawaii are HMSA (Hawaii Medical Service Association — Blue Cross Blue Shield of Hawaii), Kaiser Permanente Hawaii, and UHA (University Health Alliance).
7. Workers' Compensation Insurance
Every Hawaii employer with one or more employees must carry workers' compensation insurance. There are no exceptions for small employers.
What It Covers
Workers' comp covers medical expenses and wage replacement (66⅔% of average weekly wages) for employees injured on the job or who develop a work-related illness. Wage-loss benefits are not paid for the first three calendar days of disability, and the 2026 maximum weekly benefit is $1,240.
How to Get Coverage
HEMIC (Hawaii Employers Mutual Insurance Company) is a Hawaii-based workers' comp insurer created for local employers. Most Hawaii businesses purchase workers' comp through a licensed broker.
Payroll Connection
Workers' comp premiums are calculated as a percentage of total payroll by job classification code. Your insurer conducts an annual premium audit using your actual payroll records. Accurate, well-categorized payroll records directly affect what you pay — and whether your audit results in a credit or a surprise bill.
Penalty for Non-Compliance
Operating without workers' comp carries a penalty of at least $500, or $100 per employee for every day without coverage, whichever is greater. If the default lasts 14 days, the state can ask a court to stop you from doing business anywhere in Hawaii until you comply (HRS §386-123).
8. Pay Stub Requirements
Hawaii employers must provide employees with a written itemized statement for each pay period. Under Hawaii Revised Statutes §387-6, pay stubs must include:
- Employee's name, and the employer's name, address, and phone number
- Date of payment and pay period covered
- Total hours worked, with regular and overtime hours shown separately
- Rate or rates of pay and the basis (hourly, salary, piece rate, and so on), including overtime rates
- Straight-time pay, overtime pay, and any other compensation
- Gross wages earned
- Each deduction and its purpose (federal tax, state tax, FICA, TDI, health insurance, etc.)
- Net wages paid
Electronic pay stubs are permitted when the employee has authorized them in writing and can access them electronically. PDS generates complete, Hawaii-compliant pay stubs for every employee every pay period.
9. W-2s, 1099s & Year-End Filing
W-2 Deadline
Employers must provide W-2 forms to all employees by January 31. The same deadline applies for electronic W-2 delivery. Submit Copy A to the SSA with Form W-3, and send copies to the Hawaii Department of Taxation (with Form HW-30 if filing on paper), by January 31. When January 31 falls on a weekend, the deadline moves to the next business day (February 2 in 2026; February 1 in 2027).
1099s for Contractors
If you paid an independent contractor $2,000 or more during 2026 ($600 or more for payments made in 2025), you must file Form 1099-NEC with the IRS and provide a copy to the contractor by January 31. Hawaii also requires state 1099 reporting with Form N-196 by February 28.
ACA Reporting (50+ FTE Employers)
Applicable Large Employers (50 or more full-time employees, counting full-time equivalents) must file Forms 1094-C and 1095-C annually to report health insurance offers and coverage. Hawaii's Prepaid Health Care Act predates the ACA but does not exempt large employers from ACA reporting requirements.
10. Key Payroll Deadlines
11. Penalties for Getting It Wrong
Hawaii payroll penalties are not theoretical — the state and federal government actively assess them. These are the most common and most painful:
| Violation | Penalty |
|---|---|
| Federal tax deposit 1–5 days late | 2% of unpaid deposit |
| Federal tax deposit 6–15 days late | 5% of unpaid deposit |
| Federal tax deposit 16+ days late | 10% of unpaid deposit |
| Federal taxes still unpaid more than 10 days after the first IRS notice | 15% of unpaid deposit |
| Hawaii HW-14 late filing | 5% per month, up to 25% |
| Hawaii UI UC-B6 late filing or payment | 10% of the contributions due or $100, whichever is greater, plus interest |
| W-2 not furnished to employee by Jan 31 | $60–$340 per form for forms due in 2026 ($680 for intentional disregard) |
| ACA 1095-C not furnished to employee | IRS per-form penalties (up to $340 per return for forms due in 2026; $680 for intentional disregard) |
| ACA 1094-C / 1095-C not filed correctly with IRS | IRS per-form penalties plus potential employer mandate exposure (for applicable employers) |
| Workers' comp gap in coverage | At least $500, or $100 per employee per day, whichever is greater |
| No TDI coverage for eligible employees | Direct liability for unpaid benefits |
| Prepaid Health Care Act non-compliance | At least $25, or $1 per employee per day, whichever is greater |
12. Why Hawaii Businesses Choose PDS
Pacific Data Services has handled payroll for Hawaii businesses since 1969. Not a franchise. Not a mainland company with a local sales rep. We were built in Hawaii, for Hawaii — by people who understand that TDI, workers' comp, and HW-14 are not optional extras. They're the cost of doing business here.
What PDS Does for You Every Pay Period
- Calculates all federal and state tax withholding accurately
- Calculates and withholds TDI employee contributions (up to 0.5% of wages)
- Supports payroll records needed for your health coverage administration process
- Generates Hawaii-compliant pay stubs with full itemization
- Makes federal tax deposits via EFTPS on your behalf
- Prepares and files HW-14 returns and Hawaii withholding payments
- Prepares and files UC-B6 (Hawaii UI quarterly)
- Maintains payroll records organized for workers' comp audits
What PDS Does at Year-End
- Prepares and distributes W-2s to all employees by January 31
- Files W-2 copies (and Form HW-30 when filing on paper) with the Hawaii Department of Taxation
- Prepares 1099-NEC forms for independent contractors
- Prepares ACA forms (1094-C, 1095-C) for qualifying employers
- Provides complete payroll history and records for your accountant
Ready to Hand This Off?
Call our Honolulu office or fill out the form. We’ll tell you exactly what we’d handle for your payroll, what the cost looks like for your headcount, and what your first payroll run would look like. Takes about 15 minutes.
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