Go to Retiree Tax Map Hawaii Add to State Compare List | View List View State Compare List (0) selected | Compare up to 5 The Bottom Line Tax Friendly 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, Hawaii will tax that income up to a top rate of 8.25%. Seniors can also get big-dollar exemptions from property taxes (these vary by county), but keep in mind that Hawaiian housing values are sky-high. State Sales Tax 4%. Hawaii employs a General Excise Tax that applies to a wide range of goods and services. Only prescription drugs and prostheses are exempt. Oahu has a county surcharge tax of 0.5% to pay for a mass transit system, making the average combined rate 4.35%, as calculated by the Tax Foundation. Complicating matters further, the tax is calculated on the vendor rather than the buyer, which means consumers pay a few percentage points more in practice. 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: 8.25% (on taxable income over $96,000 for married couples filing jointly and surviving spouses; on over $48,000 for married couples filing separately and individual filers)Effective income tax rate: 6.5%/individual, 7.1%/joint 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.IRAsIRA 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 PlansDistributions are taxed. If the employer provided matching contributions, however, part of the plan is considered to be employer-funded and not taxed.Private PensionsPrivate employer-funded pension plans that employees did not contribute to are exempt.Public PensionsFirst-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 Hawaii's median home value of $528,000 is $1,401.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 Hawaii has no inheritance tax. It does have an estate tax, with the exemption matched to federal thresholds ($5.49 million in 2017). Estate tax rates range from 10% to 15.7%.