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Hawaii Retirement Tax Friendliness

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Overview of Hawaii Retirement Tax Friendliness

Hawaii entirely exempts some types of retirement income (including Social Security retirement benefits and public pension income) but fully taxes income from private pensions and retirement savings accounts.

This calculator reflects the changes under the 2018 Trump Tax Plan.
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You will pay of Hawaii state taxes on your pre-tax income of
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Quick Guide to Retirement Income Taxes
is toward retirees.
Social Security income is taxed.
Withdrawals from retirement accounts are taxed.
Wages are taxed at normal rates, and your marginal state tax rate is %.
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    Jennifer Mansfield, CPA Tax

    Jennifer Mansfield, CPA, JD/LLM-Tax, is a Certified Public Accountant with more than 30 years of experience providing tax advice. SmartAsset’s tax expert has a degree in Accounting and Business/Management from the University of Wyoming, as well as both a Masters in Tax Laws and a Juris Doctorate from Georgetown University Law Center. Jennifer has mostly worked in public accounting firms, including Ernst & Young and Deloitte. She is passionate about helping provide people and businesses with valuable accounting and tax advice to allow them to prosper financially. Jennifer lives in Arizona and was recently named to the Greater Tucson Leadership Program.

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Hawaii Retirement Taxes

Photo credit: ©iStock.com/pawel.gaul

There are a couple of things you should keep in mind if you’re considering a retirement in Hawaii. The first is the cost of living. Cost of living in Hawaii is 33% above than the national average, one of the highest in the United States. The second thing is the tax system. Depending on how you plan to live during retirement, you may find Hawaii’s tax system quite reasonable or quite onerous. That’s because the state entirely exempts some types of retirement income (including Social Security and public pension income) while fully taxing income from private pensions and retirement savings accounts.

Likewise, while the state’s property tax rate is the lowest in the U.S., housing costs remain quite high because property in the Aloha State is so expensive. Below, we’ll dive into the details on what a Hawaii retirement might mean for you.

Is Hawaii tax-friendly for retirees?

Hawaii is moderately tax-friendly, but it really depends on each retiree’s personal financial situation. For a person living off of Social Security and pension income, with small contributions from an IRA or other retirement account, Hawaii can be very tax-friendly.

For a person relying entirely on a private employer pension, 401(k) or IRA for his or her retirement income, Hawaii will be tax-unfriendly because that income would be subject to rather steep income tax rates.

Is Social Security taxable in Hawaii?

No. By Hawaii law, Social Security income is not subject to Hawaii’s state income tax.

Are other forms of retirement income taxable in Hawaii?

Yes. The good news is that public pension income is totally tax exempt in Hawaii. The bad news is that all other forms of retirement income are taxed and are not eligible for any kind of deduction. If you plan on living off of income from a 401(k), an IRA or your employer’s pension plan, you should plan to pay taxes on that income. The table below shows the income tax brackets in Hawaii.

Income Tax Brackets

Single Filers
Hawaii Taxable IncomeRate
$0 - $2,4001.40%
$2,400 - $4,8003.20%
$4,800 - $9,6005.50%
$9,600 - $14,4006.40%
$14,400 - $19,2006.80%
$19,200 - $24,0007.20%
$24,000 - $36,0007.60%
$36,000 - $48,0007.90%
$48,000+8.25%
Married, Filing Jointly
Hawaii Taxable IncomeRate
$0 - $4,8001.40%
$4,800 - $9,6003.20%
$9,600 - $19,2005.50%
$19,200 - $28,8006.40%
$28,800 - $38,4006.80%
$38,400 - $48,0007.20%
$48,000 - $72,0007.60%
$72,000 - $96,0007.90%
$96,000+8.25%
Married, Filing Separately
Hawaii Taxable IncomeRate
$0 - $2,4001.40%
$2,400 - $4,8003.20%
$4,800 - $9,6005.50%
$9,600 - $14,4006.40%
$14,400 - $19,2006.80%
$19,200 - $24,0007.20%
$24,000 - $36,0007.60%
$36,000 - $48,0007.90%
$48,000+8.25%
Head of Household
Hawaii Taxable IncomeRate
$0 - $3,6001.40%
$3,600 - $7,2003.20%
$7,200 - $14,4005.50%
$14,400 - $21,6006.40%
$21,600 - $28,8006.80%
$28,800 - $36,0007.20%
$36,000 - $54,0007.60%
$54,000 - $72,0007.90%
$72,000+8.25%

How high are property taxes in Hawaii?

The effective property tax rate in Hawaii is the lowest in the country, but because of Hawaii’s sky-high home values, the annual taxes paid by Hawaiians are closer to average. The median annual property tax in Hawaii is $1,459 (but that’s based on a median home value of more than $500,000).

What is the Hawaii home exemption?

Hawaii’s home exemption is available to Hawaii residents who own and occupy their home. The exemption is subtracted from the assessed value when calculating taxes.

The amount of the exemption varies by county. In Honolulu County, the basic exemption is $80,000. Seniors age 65 and older qualify for a larger exemption of $120,000. In Hawaii County the standard exemption is $40,000. Persons age 60 to 69 qualify for a larger exemption of $80,000, while homeowners 70 and older receive an exemption of $100,000.

Photo credit: ©iStock.com/arhendrix

How high are sales taxes in Hawaii?

Relatively low. In fact, technically, Hawaii doesn’t have a sales tax. The state has a General Excise Tax (GET) which is paid by businesses and passed indirectly to consumers. The statewide GET is equivalent to a 4% sales tax. Honolulu County collects an extra 0.5% tax, so the total GET there is 4.5%. This is about 2% lower than the average sales tax in the rest of the country. Seniors will save some on prescription drugs, however, as these are not taxed. Food is taxed.

What other Hawaii taxes should I be concerned about?

Seniors in Hawaii who have assets worth over $11 million should be aware of the state’s estate tax. Like the federal estate tax, it has an exemption of $11.2 million for 2018 ($5.49 million for deaths in 2017). Estates with a taxable value below that amount will not be taxed. Above that limit, however, expect to pay rates between 10% and 15.7%.

Most Tax Friendly Places for Retirees

SmartAsset’s interactive map highlights the places in the country with tax policies that are most favorable to retirees. Zoom between states and the national map to see the most tax-friendly places in each area of the country.

Highest
Lowest
Rank City Income Tax Paid Property Tax Rate Sales Tax Paid Fuel Tax Paid Social Security Taxed?

Methodology Our study aims to find the areas with the most tax-friendly policies for retirees. To do that we looked at how the tax policies of each city would impact a retiree with a $50,000 income. Our hypothetical retiree is getting $15,000 from Social Security benefits, $10,000 from a private pension, $15,000 from retirement savings like a 401(k) or IRA and $10,000 in wages.

To calculate the expected income tax this person would pay in each location we applied deductions and exemptions. This included the standard deduction, personal exemption and deductions for each specific type of retirement income. We then calculated how much this person would pay in income tax at the federal, state, county and local levels.

We calculated the effective property tax rate by dividing median property tax paid by median home value for each city.

In order to determine sales tax burden we estimated that 35% of take-home (after-tax) pay is spent on taxable goods. We multiplied the average sales tax rate for a city by the household income less income tax. This product is then multiplied by 35% to estimate the sales tax paid.

For fuel taxes, we first distributed statewide vehicle miles traveled down to the city level using the number of vehicles in each county. We then calculated miles driven per capita in each city. Using the nationwide average fuel economy, we calculated the average gallons of gas used per capita in each city and multiplied that by the fuel tax.

For each city we determined whether or not Social Security income was taxable.

Finally, we created an overall index weighted to best capture the taxes that most affect retirees. We gave a 4x weighting to income tax, 3x weighting to property tax rate, a 2x weighting to sales tax and 1x weighting to fuel tax.

Sources: Internal Revenue Service, Social Security Administration, state websites, local government websites, US Census Bureau 2016 American Community Survey, Avalara, American Petroleum Institute, GasBuddy, UMTRI, Federal Highway Administration