HAWAII
Return to Retiree Tax Map
NICKNAME
The Aloha State
BOTTOM LINE: TAX-FRIENDLY
Hawaii 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 the distinction of having the highest top income-tax rate in the U.S., 11%. It imposes a 4% sales tax.
STATE SALES TAX
4% (prescription drugs 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 and surviving spouses; 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; over $200,000 for married couples filing separately and individual filers)
SOCIAL SECURITY
Benefits are not taxed.
EXEMPTIONS FOR 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 will be taxed under these plans, but employee contributions are exempt.
PROPERTY TAXES
Property is assessed at 100% of fair market value. Taxes are administered by the four counties, and the rules can differ by county. The basic homestead exemption in the city and county of Honolulu, for example, is $80,000. So $80,000 would be deducted from the assessed value of the property and the homeowner would be taxed on the balance.
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 ages 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.
Visit RetirementLiving.com for a complete rundown of taxes in Hawaii.
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