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Tool | August 2013

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 the highest top income tax rates 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; 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.

Property Taxes

Property is assessed at 100% of fair market value. Rates are set by counties (except that rates for Kalawao County are set by the state). 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. Median property tax on the state's median home value of $517,600 is $1,324, 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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