SB 1470: RELATING TO INCOME TAX WITHHOLDING.

A BILL FOR AN ACT

RELATING TO INCOME TAX WITHHOLDING.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

     SECTION 1.  Section 235-61, Hawaii Revised Statutes, is amended by amending subsection (c) to read as follows:

     "(c)  For each withholding period (whether weekly, biweekly, monthly, or otherwise) the amount of tax to be withheld under this section shall be at a rate that, for the taxable year, will yield the tax imposed by section 235-51 upon each employee's annual wage, as estimated from the employee's current wage in any withholding period[, but for the purposes of this subsection of the rates provided by section 235-51 the maximum to be taken into consideration shall be eight per cent].  The tax for the taxable year shall be calculated upon the following assumptions:

     (1)  That the employee's annual wage, as estimated from the employee's current wage in the withholding period, will be the employee's sole income for the taxable year;

     (2)  That there will be no deductions therefrom in determining adjusted gross income;

     (3)  That in determining taxable income there shall be a standard deduction allowance, which shall be an amount equal to one exemption (or more or less than one exemption if so prescribed by the director) unless the taxpayer:

          (A)  Is married and the taxpayer's spouse is an employee receiving wages subject to withholding; or

          (B)  Has withholding exemption certificates in effect with respect to more than one employer.

          [For the purposes of this section, any standard deduction allowance under this paragraph shall be treated as if it were denominated a withholding exemption;]

     (4)  That in determining taxable income there also will be deducted the amount of exemptions and withholding allowances granted to the employee in the computation of taxable income, as shown by a certificate to be filed with the employer as provided by subsection (f); and

     (5)  If it appears from the certificate filed pursuant to subsection (f) that the employee, under section 235-93, is entitled to make a joint return, that the employee and the employee's spouse will so elect."

     SECTION 2.  Statutory material to be repealed is bracketed and stricken.  New statutory material is underscored.

     SECTION 3.  This Act, upon its approval, shall apply to taxable years beginning after December 31, 2024.

Report Title:

Income Taxation; Withholding; Exemptions

Description:

For taxable years beginning after December 31, 2024, (1) repeals the maximum tax rate that may be considered in determining the amount of income tax that must be withheld and the requirement that a standard deduction allowance be treated as if it was denominated as a withholding exemption, and (2) for the purpose of income tax withholding, permits the Director of Taxation to prescribe a standard deduction allowance in an amount more or less than one whole exemption.

The summary description of legislation appearing on this page is for informational purposes only and is not legislation or evidence of legislative intent.

STAND. COM. REP. NO.  1940

Honolulu, Hawaii

                , 2025

RE:   S.B. No. 1470

Honorable Nadine K. Nakamura

Speaker, House of Representatives

Thirty-Third State Legislature

Regular Session of 2025

State of Hawaii

Madame:

     Your Committee on Finance, to which was referred S.B. No. 1470 entitled:

"A BILL FOR AN ACT RELATING TO INCOME TAX WITHHOLDING,"

begs leave to report as follows:

     The purpose of this measure is to:

     (1)  Repeal the existing cap on the tax rate that may be considered in determining income tax withholding and the requirement that a standard deduction allowance be treated as if it were denominated as a withholding exemption; and

     (2)  Allow the Director of Taxation to prescribe a standard deduction allowance in an amount more or less than one whole exemption.

     Your Committee received testimony in support of this measure from the Department of Taxation.  Your Committee received comments on this measure from the Tax Foundation of Hawaii.

     Your Committee finds that the existing cap on the tax rate that may be considered in determining income tax withholding does not allow taxpayers in tax brackets with rates higher than eight percent to withhold enough for their expected income tax liabilities.  Your Committee also finds that with the anticipated changes to the standard deduction and income tax brackets pursuant to Act 46, Session Laws of Hawaii 2024, the existing requirement that a standard deduction allowance be treated as if it were denominated as a withholding exemption complicates the Department of Taxation's issuance of employees' withholding tables in the Employer's Tax Guide.  This measure addresses both issues, allowing certain taxpayers to more accurately estimate their withholding to reflect expected income tax liabilities and de-linking the standard deduction allowance from the value of the withholding exemption to help employers better estimate their employees' withholding liabilities.  This measure additionally allows for more precise estimates of employees' income tax liabilities by allowing a standard deduction allowance in fractional exemption amounts.

     As affirmed by the record of votes of the members of your Committee on Finance that is attached to this report, your Committee is in accord with the intent and purpose of S.B. No. 1470 and recommends that it pass Second Reading and be placed on the calendar for Third Reading.

Respectfully submitted on behalf of the members of the Committee on Finance,

STAND. COM. REP. NO. 691

Honolulu, Hawaii

RE:     S.B. No. 1470

Honorable Ronald D. Kouchi

President of the Senate

Thirty-Third State Legislature

Regular Session of 2025

State of Hawaii

Sir:

     Your Committee on Ways and Means, to which was referred S.B. No. 1470 entitled:

"A BILL FOR AN ACT RELATING TO INCOME TAX WITHHOLDING,"

begs leave to report as follows:

     The purpose and intent of this measure is to amend the withholding of income taxes on wages.

     More specifically, this measure:

     (1)  Repeals the maximum tax rate that may be considered in determining the amount of income tax that must be withheld and the requirement that a standard deduction allowance be treated as if it was denominated as a withholding exemption; and

     (2)  For the purpose of income tax withholding, permits the Director of Taxation to prescribe a standard deduction allowance in an amount more or less than one whole exemption.

     Your Committee received testimony in support of this measure from the Department of Taxation.

     Your Committee received comments on this measure from the Tax Foundation of Hawaii.

     Your Committee finds that the existing cap on the maximum tax rate to be considered in determining income tax withholding does not function for taxpayers in tax brackets with rates higher than eight per cent.  Repealing the cap would allow taxpayers to more accurately estimate withholding to reflect their expected liabilities.  Your Committee also finds that the requirement that a standard deduction allowance be treated as if it was denominated as a withholding exemption complicates the Department of Taxation's issuance of withholding tables in light of future changes to the standard deduction and income tax brackets under Act 46, Session Laws of Hawaii 2024.  Untying the standard deduction allowance from the value of the withholding exemption would allow the Department to more effectively assist employers in their estimation of employees' withholding liabilities in the Employer's Tax Guide.  Your Committee further finds that permitting the Director of Taxation to prescribe a standard deduction allowance in an amount more or less than one whole exemption would allow for more precise estimation of employees' income tax liabilities.

     As affirmed by the record of votes of the members of your Committee on Ways and Means that is attached to this report, your Committee is in accord with the intent and purpose of S.B. No. 1470 and recommends that it pass Second Reading and be placed on the calendar for Third Reading.

Respectfully submitted on behalf of the members of the Committee on Ways and Means,