By Andrew Gomes
The Honolulu Star-Advertiser
(TNS)
Personal income tax rates in Hawaii will become a little more progressive next year in part due to a new top rate for high-income households that puts the isles closer to the state with the highest rate.
Gov. Josh Green signed legislation May 21 amending state income tax brackets, boosting the top rate to 13% from 11% starting in 2027, though the new top rate will apply to households with more income than what previously triggered the top rate.
Under part of Act 24, which some call Hawaii’s new “millionaire tax,” a married couple earning over $1 million and filing a joint return would be charged $88,729 plus 13% on any income above $1 million for the 2027 tax year.
The top rate this year for a joint filer applies to income over $800,000 and charges a tax of $63,244 plus 11% on income above $800,000.
So, for a joint-filer household earning $2 million, the tax bill would be $195,244 this year before rising by $23,485 to $218,729 next year.
The new law also includes a step-down for the base tax in the top bracket for 2029, dropping it to $86,936 from $88,729 in 2027 and 2028 for joint filers.
Act 24’s new 13% top rate also applies to income over $750,000 for head-of-household filers, and to income over $500,000 for single filers.
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The state Department of Taxation estimates that about 2,300 tax returns, or 0.4% of all returns, will be in the new top rate, generating an additional $53 million in state revenue in 2027.
Lawmakers approved the new, higher top rate in Senate Bill 3125 as a way to partly offset the loss of tax revenue from tax breaks for households with lower and middle incomes approved by the Legislature in 2024 and being implemented in annual steps through 2031.
Hawaii’s new 13% rate closely rivals the top rate in California, which is 13.3% and ranks highest among states. However, Hawaii previously held the second-highest top personal income tax rate spot among states at 11%, according to the Tax Foundation, a Washington, D.C.-based nonprofit and nonpartisan tax policy organization.
After Hawaii, the third-highest top rate at the beginning of this year was 10.9% in New York, where the rate applies to single or joint filers with incomes over $25 million. In the fourth spot was New Jersey, where a top 10.75% rate applies to joint filers earning over $1 million.
The Tax Foundation, which notes that 42 states have a personal income tax, said Hawaii has the most tax brackets of any state, at 12. The foundation also said Hawaii is one of 26 states that have graduated rates.
Nick Johnson, senior fellow at the Institute on Taxation and Economic Policy, another Washington, D.C.-based nonprofit and nonpartisan tax policy organization, told the Hawaii Tax Review Commission during a June 16 meeting that the state’s personal income tax is “quite progressive” given its graduated rate structure and low-income tax credits.
Johnson said the bottom 20% of Hawaii households defined by annual income under $21,900 pay 0.5% of their personal income to the state as income tax, while the top 1% earning over $594,900 pay 6.8%. Groups in between pay from 2.3% to 5.5%, Johnson told the commission.
According to the most recent Department of Taxation data from 2022, Hawaii households earning $400,000 or more represented 1.4% of all tax filers and generated 31.3% of state personal income tax revenue. The next biggest contribution was from households earning between $100,000 and $149,999. They represented 9.7% of all tax filers and generated 15.2% of state tax revenue that year.
Baybars Karacaovali, tax research and planning officer at the Taxation Department, expressed a concern to commissioners that some high-income Hawaii residents may be motivated to leave the state due to the new top tax rate.
“I mean, it’s hard to account for (behavioral responses) because we don’t know,” Karacaovali said. “It’s 0.4% of the taxpayers, about 2,000 taxpayers, and if 10 of them move or change their residency, let’s say to Florida where they don’t have to pay individual income taxes anymore, you actually lost more money than just having enacted that 13% rate.”
Johnson said the best studies on the topic in other states show no negative impact on tax revenue.
“I don’t think any state that I’ve ever seen has actually found that it lost revenue when it raised income taxes on the top,” he told commissioners. “That’s not to say it couldn’t possibly happen, but it’s not been the experience in other states. Massachusetts passed a millionaire’s tax two years ago, and revenues from that tax are growing far exceeding projections.”
Johnson added that the reason not to fear a decline has to do with people choosing to live where they live based largely on factors other than tax rates most of the time.
HAWAII HAD long been recognized as having one of the highest personal income tax burdens among states. Then in 2024 state lawmakers set out a path to reduce that burden in annual steps over eight years.
Under a bill that became law that year, the biggest cumulative tax cut in Hawaii history was implemented to deliver an estimated $5.6 billion in total savings for taxpayers from 2024 to 2031.
Green said at the time that the historic 2024 legislation would take Hawaii’s income tax burden from second-highest to fourth-lowest among states and reduce taxes for households by between 10% and 72%, depending on income.
That legislation, which became Act 46 in 2024, doubled the standard deduction for the 2024 tax year followed by further increases every two years through 2030. It also cut taxes by amending tax brackets every two years from 2025 to 2031.
But in January, Green raised concerns about anticipated state revenue losses due to federal government actions, and he proposed repealing tax cuts for 2027 to 2031.
Representatives of the governor said 70% of all savings from the eight-year package were being realized through 2026, and that Hawaii families would save $5.4 billion over the next five years after $1.5 billion this year because lower tax rates through this year will continue at the 2026 level.
The Legislature balked at Green’s plan and ended up passing SB 3125, which preserves the tax cuts for about 90% of local households and increases rates for the highest-income households.
THE NEW law also alters rates for three other groups of taxpayers, freezing rates for households in a few higher brackets and cutting rates for households in two lower brackets compared with what was set out in the 2024 legislation.
Under the new law, there will be no reductions to the tax burden in 2027 or 2029 for households with incomes over $350,000 for joint filers, $262,500 for heads of households and $175,000 for single filers.
Department of Taxation officials noted that for some high-income households, such as a married couple earning $800,000, their tax liability will still be less in 2027 than it would have been if the 2024 tax-cut package wasn’t passed.
At the low end of Hawaii’s tax brackets, rates for the second- and third-lowest brackets are being reduced for 2027 and 2029 to 2.5% and 5%, respectively, from 3.2% and 5.5%.
The second-lowest bracket applies to households with incomes from $28,801 to $38,400 for joint filers, $21,601 to $28,800 for heads of households and $14,401 to $19,200 for single filers.
The third-lowest bracket applies to households with incomes from $38,401 to $48,000 for joint filers, $28,801 to $36,000 for heads of households and $19,201 to $24,000 for single filers.
Taken all together, changes under Act 24 are estimated by the Taxation Department to result in net gains to state tax revenue that begin with $86.7 million in fiscal year 2028 and rise modestly per year to reach $109.2 million in fiscal year 2032.
Photo caption: Hawaii Gov. Josh Green (Governor Josh Green/Facebook)
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© 2026 The Honolulu Star-Advertiser. Visit www.staradvertiser.com. Distributed by Tribune Content Agency LLC.
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