Hawaii levies an estate tax. The tax is progressive, with rates ranging from 10.00% to 15.70%. For 2018, the estate tax exemption in Hawaii is $5.49 million. That number is expected to rise to the federal exemption level in 2019, though specifics have yet to be determined. This guide is intended for residents of the Aloha State who want to learn what they need to know to ensure their assets are protected and their families are prepared once they die. If you need estate planning assistance, a financial advisor can help. SmartAsset can help you find an advisor with our free financial advisor matching service.
Hawaii Estate Tax Exemption
The threshold for the Hawaii estate tax is $5.49 million in 2018. That number is set to increase to match the federal exemption in 2019, but it is not exactly clear if that will happen or what it will look like. For now, though, any estate for a person who dies in 2018 is subject to the 2018 rules. If your estate is worth more than the $5.49 million exemption, you will owe estate tax. You only owe tax on the value exceeding the exemption.
Hawaii Estate Tax Rate
Hawaii’s estate tax is progressive, with a series of increasing rates applying as the value of the estate rises. The tax only applies to value above the $5.49 million exemption.
A full table of the tax brackets is provided below. The base taxes show how much you owe on assets that fall below the bracket. You’ll then need to determine by how much your estate exceeds the lower limit of your bracket and multiply that number by the marginal rate. Add that number to the base rate and you’ll get your total tax bill.
Here’s an example: Let’s say you have an estate worth $8 million and die in 2018. Subtract the $5.49 million exemption, which leaves you with a taxable estate of $2.51 million. That puts you in the third tax bracket, with a base tax payment of $210,000. You also owe 12% on the $510,00 in your tax bracket, which comes to $61,200. Add that number to the base rate and you’ll get your Hawaii estate tax burden, which in this case is $271,200.
|HAWAII ESTATE TAX RATES|
|Taxable Estate*||Base Taxes Paid||Marginal Rate||Rate Threshold**|
|$0 – $1 million||$0||10.00%||$0|
|$1 million – $2 million||$100,000||11.00%||$1 million|
|$2 million – $3 million||$210,000||12.00%||$2 million|
|$3 million – $4 million||$330,000||13.00%||$3 million|
|$4 million – $5 million||$460,000||14.00%||$4 million|
|$5 million and up||$600,000||15.70%||$5 million|
*The taxable estate is the total above the exemption of $5.49 million.
**The rate threshold is the point at which the marginal estate tax rate goes into effect.
What Is the Estate Tax?
The estate tax, sometimes called the “death tax,” is levied on an estate after someone dies but before the person’s money is passed on to their heirs. Only estates worth more than a legally determined exemption are subject to the estate tax. Don’t confuse the estate tax with the inheritance tax, which some states use to tax money after it has already passed on to a person’s designated heirs. Whereas estate tax is levied on an estate, beneficiaries must pay the inheritance tax.
Hawaii Inheritance Tax
Hawaii does not levy an inheritance tax. Inheritance laws in other states may apply to you, however, if you receive an inheritance from someone who lives there. Kentucky, for instance, applies its inheritance tax to all property inside the state, even if the inheritor is living out of state. Check local laws if you inherit property or assets from someone living in another state to find out for sure if you’ll owe any taxes.
Hawaii Gift Tax
Hawaii does not have a gift tax. The federal gift tax has a $15,000 exemption per gift recipient each year. If you give more than $15,000 to any one person in a year, you’ll have to report it to the IRS. Your lifetime gift tax exemption of $11.18 million will also decrease, as will your federal estate tax exemption.
Hawaii Estate Tax for Married Couples
The Hawaii estate tax is portable. This means that when a person dies, they can move their exemption to their spouse. That essentially allows a married couple to protect up to $10.98 million when they both die.
Federal Estate Tax
The federal estate tax may apply to your estate on top of the Hawaii estate tax. It has an exemption of $11.18 million. This exemption is portable between spouses, much like the Hawaii estate tax, so a couple can protect up to $22.36 with the right legal maneuvers.
The highest rate for the federal estate tax is 40%. You can find your federal estate tax burden using the table below with the same method described above.
|FEDERAL ESTATE TAX RATES|
|Taxable Estate*||Base Taxes Paid||Marginal Rate||Rate Threshold**|
|$1 – $10,000||$0||18%||$1|
|$10,000 – $20,000||$1,800||20%||$10,000|
|$20,000 – $40,000||$3,800||22%||$20,000|
|$40,000 – $60,000||$8,200||24%||$40,000|
|$60,000 – $80,000||$13,000||26%||$60,000|
|$80,000 – $100,000||$18,200||28%||$80,000|
|$100,000 – $150,000||$23,800||30%||$100,000|
|$150,000 – $250,000||$38,800||32%||$150,000|
|$250,000 – $500,000||$70,800||34%||$250,000|
|$500,000 – $750,000||$155,800||37%||$500,000|
|$750,000 – $1 million||$248,300||39%||$750,000|
|Over $1 million||$345,800||40%||$1 million|
*The taxable estate is the total above the exemption of $11.18 million.
**The rate threshold is the point at which the marginal estate tax rate kicks in.
Overall Hawaii Tax Picture
Hawaii’s retirement tax picture is a mixed bag. The state does not tax Social Security benefits or public pension income, but it fully taxes income from private pensions and withdrawals from retirement accounts like 401(k) plans. Hawaii’s income tax is progressive, with rates ranging from 1.40% to 8.25%.
Property taxes in Hawaii are the lowest in the country, with an average effective rate of just 0.27%. High home values on the islands, however, mean that actual tax payments are closer to the middle of the pack in terms of dollar amount. Hawaii has a homestead exemption for residents who own and occupy their homes. The amount that it’s worth varies by county, but in some counties seniors are eligible for a higher exemption.
Hawaii technically doesn’t have a sales tax, but it has a general excise tax charged to businesses and typically passed on to consumers. That rate is 4% statewide, with an additional 0.50% in Honolulu County.
Estate Planning Tips
- It’s okay to ask for help with estate planning or any other element of financial planning. SmartAsset can help you get that help with our free financial advisor matching service. You answer a few questions and we match you with up to three advisors in your area, all fully vetted and free of disclosures. Once you’re matched, you interview each match and see if any of them seems like a good fit.
- Choosing an executor is important for your will, and picking the wrong person is a common estate-planning mistake. Make sure you pick someone you trust who will be able to deal with the legal and financial issues related to carrying out your wishes.
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