Susan Meyers is 74 years old and lives in Hawaii. She lives alone in an apartment for seniors on a fixed income. Her Social Security check of $1,122 helps her pay a part of her rent. She worked hard for 45 years to save money for retirement, but after paying for utilities, internet, phone, and car insurance, there is little money left over. She’s concerned that she will not be able to stay in her apartment as rents rise.
Meyers has dental issues, but cannot afford recommended treatment. She suffers from COPD and breast cancer, so she struggles to carry heavy loads up the stairs. She carries on without a washing machine since she cannot afford to replace or repair it. She relies on Social Security payments to keep her going since the money she made as a clerk while she was employed is not enough for her to pay her bills. For Susan, payroll taxes in Hawaii are indeed a lifesaver.
This article deals with the following topics:
- Hawaii, Payroll Taxes: What Do They Consist of
- Hawaii, Payroll Taxes: Federal Payroll Tax
- Hawaii, Payroll Taxes: Federal and State Income Tax
- Hawaii, Payroll Taxes: Income Tax vs Other Taxes
- Hawaii, Payroll Taxes: Forms to Be Filled Out
- Hawaii, Payroll Taxes: Form HW-4
- Hawaii, Payroll Taxes: Form W-4
- Hawaii, Payroll Taxes: Form W-2
- Hawaii, Payroll Taxes: Form I-9
- Hawaii, Payroll Taxes: Direct Bank Deposit Authorization Form
- Hawaii, Payroll Taxes Calculation
- Key Takeaways
Federal taxes and Hawaii, state income tax is needed because the Federal and State Governments need revenue to provide infrastructure to their citizens. Medicare and Social Security benefits are funded by Federal payroll taxes. Unemployment taxes are paid by the employers so that unemployment benefits can be paid to out-of-work employees.
From the perspective of a business owner, all these taxes have to be taken into account. Payroll taxes in Hawaii help many people sustain themselves in their old age.
Hawaii, Payroll Taxes: What Do They Consist of
Businesses have to take into account Social Security payroll tax, Medicare payroll tax, federal income tax, and state income tax to process payroll correctly and determine the payroll taxes, in Hawaii. Unemployment tax contributions by the employer have to be considered to determine the employer's liability.
Hawaii, Payroll Taxes: Federal Payroll Tax
Medicare and Social Security programs are funded by the federal payroll taxes that are a part of payroll taxes in Hawaii. FICA (Federal Insurance Contributions Tax) tax contribution is the name given to the federal payroll taxes that fund Medicare and Social security. Both employers and the employees contribute to Medicare and Social Security.
The Social Security tax determines the monthly payment people get after retirement while Medicare tax pays for medical benefits after the employees retire at the age of 65. The amount withheld by the employer from the employees' pay is based on salaries, wages and tips paid and forms a part of Hawaii, payroll taxes. Federal payroll taxes are not affected by people's tax filing status. The withholding rates are the same regardless of whether people are single or married.
In Hawaii, payroll taxes that fund Social Security make their way to the Old Age and Survivor's Insurance Trust Fund and the Disability Insurance Trust Fund. The first fund pays retirement and survivor benefits whereas the second fund pays for Federal Disability benefits.
In Hawaii, payroll taxes that go towards medical expenses make their way to the Hospital Insurance Trust Fund and the Supplementary Medical Insurance Trust Fund. The Hospital Insurance Trust Fund pays for hospital care, skilled nursing inpatient care, home care (in some special cases) and also the associated administration fees.
Since people pay Hawaii, payroll taxes when they are employed, they end up saving money on hospital care. The Supplementary Medical Insurance Trust Fund pays for laboratory tests, screenings, prescription drugs, outpatient care, x-rays, ambulance service, and other costs.
Hawaii, Payroll Taxes: Federal and State Income Tax
Income tax consists of the state income tax and federal income tax. The employers withhold a part of the employees' income to pay the State and the Federal departments.
Hawaii requires employers to withhold state income tax from employees’ wages along with the unemployment taxes paid by the employers and remit the taxes to the Department of Revenue. The wages of the residents of Hawaii working temporarily outside the state also have to be withheld if their normal place of employment is in Hawaii and their wages are paid out on office situated in Hawaii.
So, if your business has employees working in Hawaii, you will need to withhold and pay state income tax on their salaries for the services performed inside or temporarily outside Hawaii. This is in addition to withholding federal income tax for the same employees. You will also need to withhold and pay taxes on the taxable wages of taxable non-residents for the services performed in Hawaii, but there are exceptions to this rule.
- If the non-resident is working in Hawaii for 60 days or less in a calendar year and the employer reasonably expects the non-resident to be in Hawaii only for 60 days or less then the non-resident's wages don't have to be withheld to pay state income tax
- If the employee's regular place of employment is not Hawaii, and the employee is paid out of an office that is situated outside Hawaii, the wages of the employee don't have to be withheld for paying state income tax
The withholding tax returns are filed on a calendar year basis even if the tax year does not end on 31st December. Employers are required to file form HW-14, the periodic tax return quarterly only. Employers are not allowed to file monthly. Filing the HW-14 form quarterly has no effect on the frequency of remitting withholding taxes to the state.
Hawaii, Payroll Taxes: Income Tax vs Other Taxes
Hawaii, payroll taxes consist of payments towards Medicare tax, Social Security tax, state income tax and federal income tax. Unemployment tax contributions by the employer have to be considered to determine the employer's liability.
- Only the employees pay income tax, but the Social Security taxes and Medicare taxes that are classified under Hawaii, payroll taxes require the employers and employees to contribute
- In the case of income tax, the tax slabs vary with the income of a person, but the Social Security tax rates and Medicare tax rates are fixed
- Income tax is paid by people in order to generate revenue for the federal and state departments so that they can maintain and provide infrastructure to the citizens. Medicare and Social Security taxes that form a part of payroll taxes in Hawaii directly benefit citizens since these taxes determine how much people receive in medical care and Social Security benefits
- The FUTA (Federal Unemployment Tax Act) tax provides compensation to employees when they are out-of-work. Only employers pay FUTA taxes. Unlike Social Security Medicare taxes, and income tax, employees do not have to pay FUTA tax. FUTA imposes a tax on any business with employees. The revenue FUTA tax generates is allocated to state unemployment insurance agencies and used to fund unemployment benefits for people who are out of work.
- The State Unemployment Tax Act tax or SUTA tax is a tax that the employers have to pay to the state. SUTA tax provides unemployment compensation to workers who have lost their jobs. SUTA can also be referred to as State Unemployment Insurance.
In Hawaii, payroll taxes that are deducted are itemized on the employees' pay stub. The itemized list shows the amount that is withheld for various taxes. Payroll taxes in Hawaii have to be remitted by businesses on a monthly, quarterly or annual basis, and at every payroll run, businesses have to pay federal and state taxes.
Hawaii, Payroll Taxes: Forms to Be Filled Out
All businesses will need employees to complete the following forms before they can determine Hawaii, payroll taxes.
Hawaii, Payroll Taxes: Form HW-4
Before employers can determine Hawaii, payroll taxes, employees have to fill out the employee withholding allowance certificate that informs the employer about the state income tax withholding for employees. If form HW-4 has not been with filled out by an employee, the employer has to assume that the employee is single and is claiming zero exemptions, so he must withhold taxes accordingly.
The employee cannot simply write 'exempt' in the HW-4 form since Hawaii's withholding law does not allow the employees to claim complete exemption from withholding. In case an employee simply writes 'exempt' in the form without indicating the number of withholding exemptions he is claiming, the employer must withhold taxes assuming that the employee is single and is not claiming any exemptions.
A new HW-4 form does not have to be filled out by the employees every year unless there is a change in the marital status of the employees and the number of exemptions being claimed. A new HW-4 form has to be filled out by employees within 10 days if the change in their marital status means that they cannot file joint taxes or claim as many exemptions as they were claiming previously.
A new HW-4 form must be filled by the 1st of December for the change that takes place during the year provided the changes do not affect the amount of tax to be withheld until the following year. If there are changes in the number of exemptions as a result of the death of a dependent in the month of December, then the new form HW-4 has to be filled within 10 days. In case of all such changes that occur in the month of December, the HW-4 form has to be filled in the month of December.
Hawaii, Payroll Taxes: Form W-4
All new employees have to complete Form W-4 so that the employers can ascertain withholding in case of federal income tax in order to determine payroll taxes in Hawaii. The employees have to enter their name, address, and social security number in Form W-4.
All those employees who were hired in 2019 or prior to that can continue with the information provided on their old W-4. If employees work a second job, get married, have a child, or get divorced, they are required to fill a new W-4. Employees can choose to have additional tax withheld. Form W-4 also helps employees claim exemptions in case of dependents. In order to be exempt from withholding, employees should owe no federal income tax in the prior tax year, and owe no federal income tax in the current tax year.
Hawaii, Payroll Taxes: Form W-2
Employers have to provide Form W-2 to report FICA taxes or Federal Insurance Contributions Act taxes for the employees who had earnings in the prior year. Medicare taxes and Social Security taxes together are known as FICA taxes or federal payroll taxes. These have to be determined to find out payroll taxes in Hawaii.
Hawaii, Payroll Taxes: Form I-9
All new employees have to complete and sign section 1 of Form I-9 on the first day of employment if not earlier, but not before accepting a job offer. Section 2 of the form has to be completed and signed within 3 business days from the first day of employment.
The employees have fill out their name, address, telephone number, e-mail, state, zip code, apartment no, city/town, date of birth and social security number. They have to declare if they are citizens of the United States, non-citizen nationals of the US, permanent residents, or aliens authorized to work. The form is also used for re-verification and rehires.
Hawaii, Payroll Taxes: Direct Bank Deposit Authorization Form
Employees who want their employers to directly net pay into their bank account have to fill out a direct bank deposit authorization form. They have to fill out their bank routing number and account number. Banks invariably ask for a voided check so that they can verify the information provided for the bank accounts by the employees.
In spite of signing the Direct Bank Deposit Authorization Form, certain checks may not be automatically deposited into the employees' account but may be handed over to the employees. The first check after the payroll office sets up the direct bank deposit, the first check after the payroll office enters the authorized changes to the employees' bank or bank account, and the last check paid to the employees after they are terminated from service are generally not deposited directly into the employees' account.
Hawaii, Payroll Taxes Calculation
In Hawaii, payroll taxes are calculated after determining gross wages. You can calculate federal income tax, Social Security payroll tax, Medicare payroll tax, state income tax, federal unemployment tax, and state unemployment tax using the following steps
- To calculate payroll taxes in Hawaii determine gross wages in the following manner: In case all the employees are salaried, divide each employee's annual salary by the number of pay periods. In case some employees are working on an hourly basis, multiply their hours worked by the pay rate per hour. Remember to consider bonus, commissions and tips while calculating gross wages in order to determine Hawaii, payroll taxes.
- Deduct pre-tax holdings from gross pay if your employees have 401(k), FSA, or other pre-tax withholdings in order to calculate Hawaii, payroll taxes
- To determine Hawaii, payroll taxes deduct federal income tax. The federal income tax rate is 0% to 37% of taxable earnings
- Remember to deduct and match any Federal Insurance Contributions Act taxes while calculating Hawaii, payroll taxes. Social Security tax is 6.2% of an employee’s taxable wage till the wages are $147,000 for the year. Employers have to pay a matching tax of 6.2% up to the wage limit. Medicare tax is 1.45% of the employee’s taxable wages till the wages are $200,000 for the year. In the case of wages above $200,000, there is an Additional Medicare tax of 0.9%. This increases the Medicare tax rate to 2.35%. Employers have to pay a matching Medicare tax of 1.45%. However, only the employee is responsible for paying the 0.9% Additional Medicare tax
- Calculate the Federal Unemployment Tax Act Taxes. This tax is 6% of the first $7,000 of every employee’s taxable income. If employers pay the full amount of state unemployment taxes regularly, they are eligible for a tax credit of up to 5.4%, so they manage to save 90% on taxes. Employers must remember to pay state employment taxes to save on FUTA taxes
- Hawaii charges a progressive state income tax. There are 12 tax brackets in Hawaii and they range from 1.4% on the low end to 11% on the high end. Employees who earn more than $200,000 a year are in the highest tax bracket
- Employers in Hawaii have to pay unemployment insurance to the state. The 2022 state unemployment tax rates range from 0.2% to 5.8% on the first $500 paid to each employee as wages in a calendar year. New employers pay a flat rate of 3% in state unemployment tax or state unemployment insurance. Employment and Training Assessment (E&T) Rate of 0.01% also has to be paid
Even though it is hard for people to survive on just their Social Security check, Medicare and unemployment benefits many people are still doing it. Some people are living months on their benefits that are funded by payroll taxes. It is not just poor people who are relying on Social Security. Even people who well off need Social Security benefits.
Bob and Betty, both 50 years old have $866,000 to retire comfortably. Even after having such impressive savings, they can live comfortably only if they receive Social Security along with the income from their portfolio and pension money. There are many people like Bob and Betty who are relying heavily on payroll taxes in Hawaii to retire comfortably.
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- Businesses have to consider federal tax, Social Security tax, Medicare tax, and state income tax while calculating Hawaii, payroll taxes. Unemployment tax contributions by the employer have to be taken into account to determine the employer's liability
- Social Security payroll tax and Medicare payroll tax are classified under Hawaii, payroll taxes draw contributions from both employers and employees
- In Hawaii, payroll taxes that fund Social Security and Medicare go into two separate trust funds each
- Income tax refers to the state and federal taxes. In the case of income tax, the employer holds back a part of the employees' income to pay either the state or the federal department
- In Hawaii, payroll taxes are calculated after determining gross wages. You can calculate federal income tax, Social Security tax, Medicare tax, FUTA tax, state income tax, and state unemployment tax using the aforementioned steps
- Before computing Hawaii, payroll taxes employees have to fill out Form HW-4 for determining state income tax withholding
- Form W-4 has to be completed by employees so that federal income tax withholding can be determined for computing Hawaii, payroll taxes
- Form W-2 has to be completed by employees so that FICA taxes for employees can be reported and employees' tax obligations can be tracked for determining Hawaii, payroll taxes
- Form I-9 and Direct Bank Deposit Authorization form also have to be filled out before Hawaii, payroll taxes are ascertained