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Tool | October 2015

State-by-State Guide to Taxes on Retirees

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Hawaii

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The Bottom Line
Map of Hawaii

Mixed Tax Picture

The Aloha State is known for its high cost of living, but it can be a tax paradise for retirees. It exempts Social Security benefits as well as most pension income from state income taxes. But if you have other sources of income, watch out: Hawaii has one of the highest top income tax rates in the U.S. -- 11%.

State Sales Tax

4%. Hawaii employs a General Excise Tax that applies to a wide range of goods and services. Since it's levied on the vendor rather than the buyer, the actual rate consumers pay is closer to 4.2%. Only prescription drugs and prostheses are exempt. Oahu has a county surcharge tax of 0.5% to pay for a mass transit system.

Income Tax Range

Low: 1.4% (on taxable income up to $4,800 for married couples filing jointly; on up to $2,400 for married couples filing separately and individual filers)

High: 11% (on taxable income over $400,000 for married couples filing jointly and surviving spouses; on over $300,000 for married couples filing separately and individual filers)

Social Security

Benefits are not taxed.

Exemptions for Other Retirement Income

First-tier Railroad Retirement benefits and military, federal, state and local pensions are exempt. All out-of-state government pensions are exempt. Also, private employer-funded pension plans that employees did not contribute to are exempt. Distributions from private, employer-funded pension plans received upon retirement are partially taxed by the state if the employee contributed to the pension plan. Employee earnings are taxed under these plans, but employee contributions are exempt.

IRAs

IRA distributions are fully taxed if funded by an individual, rather than the employer through a rollover from an employer plan.

401(k)s and Other Defined-Contribution Employer Retirement Plans

Distributions are taxed. If the employer provided matching contributions, however, part of the plan is considered to be employer-funded and not taxed.

Private Pensions

Private employer-funded pension plans that employees did not contribute to are exempt.

Public Pensions

First-tier Railroad Retirement benefits and military, federal, state and local pensions are exempt. All out-of-state government pensions are exempt.

Property Taxes

The median property tax on the state's median home value of $500,000 is $1,389, according to the Tax Foundation.

Tax breaks for seniors: These vary by county. In Honolulu, for example, homeowners 65 or older get a larger home exemption of $120,000. Low-income seniors age 75 and older may qualify for even larger exemption amounts, ranging from $140,000 to $200,000, depending on age.

Inheritance and
Estate Taxes

The estate and transfer tax is imposed on Hawaii property owners with estates worth $3.6 million or more, and tax rates range from less than 1% to 16%. There is no inheritance tax.

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