⚡ Quick Answer

Hawaii payroll involves five distinct layers of obligation: federal income tax withholding and FICA, Hawaii state income tax (12 brackets, uses Form HW-4), Unemployment Insurance (UI), Temporary Disability Insurance (TDI), and the Prepaid Health Care Act (PHCA). It is one of the most complex payroll environments in the United States, and most mainland payroll software doesn’t handle it correctly.

If you’re running a small business in Hawaii and you have employees, you already know that things work differently here. Hawaii’s payroll requirements are among the most complex in the nation. That is not because any single requirement is impossibly difficult, but because there are more layers than virtually any other state. Between a 12-bracket state income tax, mandatory Temporary Disability Insurance, and a health care mandate that doesn’t exist anywhere else in the country, Hawaii payroll is a category of its own.

This guide gives you the big-picture overview of everything that goes into running payroll in Hawaii. Whether you’re hiring your first employee or evaluating whether to switch from DIY payroll to a professional service, this is where to start.

Why Hawaii Payroll Is Different

Every state has payroll taxes. Every state requires some form of unemployment insurance. But Hawaii goes further than any other state in the U.S. on employer obligations. Here’s why:

  • 12 state income tax brackets (more than any other state), with a top marginal rate of 11%
  • Its own withholding form (HW-4) that is separate from the federal W-4
  • Mandatory Temporary Disability Insurance (TDI): only a handful of states require this
  • The Prepaid Health Care Act (PHCA): Hawaii is the only state that mandates employer-provided health insurance under state law (separate from the ACA)
  • General Excise Tax (GET) implications that affect how you think about payroll costs overall

The result is that Hawaii employers deal with five separate layers of payroll obligation, each with its own rules, rates, forms, and deadlines. Let’s break each one down.

The 5 Layers of Hawaii Payroll

📑 The 5 Layers at a Glance:
  1. Federal: Income tax withholding, FICA (Social Security + Medicare), FUTA
  2. Hawaii State Income Tax: 12 brackets, HW-4, quarterly/monthly/semiweekly deposits, quarterly HW-14
  3. Unemployment Insurance (UI): Employer-only tax, experience-rated, quarterly filing
  4. Temporary Disability Insurance (TDI): Mandatory coverage for employees; benefits after 14 weeks of 20+ hrs
  5. Prepaid Health Care Act (PHCA): Mandatory health insurance for employees working 20+ hrs/week

Layer 1: Federal Income Tax Withholding & FICA

This is the layer that every employer in the United States deals with, regardless of state. But it’s still a significant piece of the Hawaii payroll puzzle, so let’s make sure it’s clear.

Federal Income Tax Withholding

Every time you pay an employee, you must withhold federal income tax based on the information they provide on their federal Form W-4. The amount withheld depends on the employee’s filing status, income, and any adjustments they’ve claimed on the W-4. You don’t pay this tax yourself. You withhold it from the employee’s wages and remit it to the IRS on their behalf.

FICA Taxes (Social Security & Medicare)

FICA is a shared obligation between employer and employee:

  • Social Security: 6.2% from the employee + 6.2% from the employer = 12.4% total (on wages up to the annual Social Security wage base)
  • Medicare: 1.45% from the employee + 1.45% from the employer = 2.9% total (no wage cap; an additional 0.9% applies to employee wages above $200,000)

FUTA (Federal Unemployment Tax)

The Federal Unemployment Tax Act (FUTA) tax is paid entirely by the employer. The standard FUTA rate is 6.0% on the first $7,000 of each employee’s wages per year. However, most employers receive a credit of up to 5.4% for paying state unemployment taxes on time, reducing the effective FUTA rate to just 0.6%.

💡 Pro Tip: Federal payroll taxes are filed quarterly on Form 941. Most small employers deposit federal taxes monthly (by the 15th of the following month). Larger employers may be required to deposit semi-weekly. Always check the IRS deposit schedule based on your total tax liability.

Layer 2: Hawaii State Income Tax Withholding

Here is where Hawaii starts to diverge from the mainland. Hawaii has one of the most complex state income tax systems in the country, and the withholding rules reflect that complexity.

12 Tax Brackets

Hawaii’s state income tax has twelve brackets, the most of any state. Rates range from 1.4% to 11%, depending on taxable income and filing status. The top rate of 11% is among the highest state income tax rates in the nation. For comparison, most states have between 3 and 6 brackets.

What this means for employers: calculating the correct withholding amount is more nuanced than in most states. You can’t just apply a flat percentage or use a simple lookup table with a handful of rows. You need Hawaii-specific withholding tables.

Form HW-4 (Not the Federal W-4)

⚠️ Important: Hawaii uses its own withholding form, Form HW-4, for state income tax withholding. You cannot use the federal W-4 for Hawaii state withholding. Every employee must complete both a federal W-4 and a Hawaii HW-4 when they are hired. Unlike the federal W-4 (which was redesigned in 2020), the Hawaii HW-4 still uses the traditional allowance-based system.

This is one of the most common mistakes new Hawaii employers make: assuming the federal W-4 covers state withholding. It does not. If you fail to collect HW-4s, you’ll be withholding the wrong amount (or nothing at all) for state taxes, which creates problems at year-end for both you and your employees.

Deposit Requirements

Hawaii state withholding deposits are made using Form VP-1, and the return is Form HW-14:

  • Quarterly depositors: Annual Hawaii withholding of $5,000 or less
  • Monthly depositors: Over $5,000 up to $40,000 (due by the 15th of the following month)
  • Semiweekly depositors: Employers with annual withholding above $40,000 must deposit semiweekly by EFT
  • Form HW-14: Filed quarterly by the 15th day of the month after each quarter

At year-end, you file the state copies of your employees’ W-2s (or Forms HW-2) with the Department of Taxation by January 31. The old annual Form HW-3 has not been required since tax year 2020.

Layer 3: Unemployment Insurance (UI)

Hawaii’s Unemployment Insurance program provides temporary income to workers who lose their jobs through no fault of their own. The tax that funds it is paid entirely by the employer. Employees do not contribute.

Key UI Facts

  • Who pays: The employer only; no employee deduction
  • Tax rate range: 0.0% to 5.6% for 2026 (Schedule C), depending on your experience rating
  • New employer rate: 2.40% for 2026 (your rate will adjust over time based on your claims history)
  • Taxable wage base: $64,500 per employee for 2026 (adjusted annually by the DLIR)
  • Filing frequency: Quarterly, using Form UC-B6

Experience Rating System

Your UI tax rate is not static. It’s determined by your experience rating, which is essentially a measure of how many of your former employees have filed unemployment claims. If you have a stable workforce and few layoffs, your rate goes down over time. If you’ve had significant separations, your rate goes up. This is why thoughtful hiring, retention, and proper termination documentation matter. They directly affect your bottom line.

Registration and Filing

When you first hire employees in Hawaii, you must register with the Hawaii Department of Labor and Industrial Relations (DLIR). You’ll receive a UI employer account number and your initial tax rate. Quarterly filings on Form UC-B6 are due by the last day of the month following the end of each quarter (April 30, July 31, October 31, January 31).

⚠️ Don’t Miss This: You must file your UC-B6 even in quarters where you had no payroll. Failure to file, even a zero return, can result in penalties and affect your experience rating.

Layer 4: Temporary Disability Insurance (TDI)

Temporary Disability Insurance is one of Hawaii’s signature employer requirements, and one that catches many new-to-Hawaii business owners off guard. Hawaii has required TDI since 1969, decades before any discussion of mandatory disability benefits became part of the national conversation.

What TDI Covers

TDI provides partial wage replacement to employees who cannot work due to a non-work-related illness or injury. This includes recovery from surgery, serious illness, pregnancy-related disability, and other medical conditions that prevent the employee from performing their job. (Work-related injuries are covered separately by workers’ compensation.)

Which Employees Must Be Covered

📑 TDI Eligibility Threshold: An employee qualifies for TDI benefits after at least 14 weeks with 20 or more hours of paid work each and at least $400 in wages during the 52 weeks before the disability. This captures many part-time workers.

Benefit Details

  • Benefit amount: 58% of the employee’s average weekly wage, up to a state-set maximum (adjusted annually)
  • Waiting period: 7 days (the first week of disability is not covered)
  • Maximum duration: 26 weeks per disability

Cost Sharing

Here’s an important detail: employers can share the cost of TDI with employees. You can require employees to contribute up to 50% of the TDI premium cost, but the employee’s share cannot exceed 0.5% of their weekly wages (a maximum of $7.50 per week for 2026). Many employers choose to pay the full premium as an employee benefit, but cost-sharing is legally permitted.

How to Provide Coverage

You can obtain TDI coverage through:

  • An approved private insurance carrier (most common for small businesses)
  • A self-insured plan approved by the DLIR (more common for larger employers)

The DLIR’s Disability Compensation Division maintains a list of approved carriers and oversees compliance.

Layer 5: The Prepaid Health Care Act (PHCA)

This is the big one: the requirement that makes Hawaii truly unique among all 50 states. The Prepaid Health Care Act, enacted in 1974, requires employers to provide health insurance coverage to eligible employees. No other state has a comparable mandate under state law (the Affordable Care Act has its own employer mandate, but Hawaii’s PHCA predates it and is actually more expansive in several ways).

Which Employees Must Be Covered

📑 PHCA Eligibility Threshold: Employees who work 20 or more hours per week for 4 consecutive weeks must be offered qualifying health insurance coverage. This captures many part-time workers who would not be covered under the ACA’s employer mandate alone.

What Employers Must Provide

The health plan must meet minimum benefit standards set by the Hawaii DLIR’s Prepaid Health Care Advisory Council. The plan must cover:

  • Hospital care
  • Surgical benefits
  • Medical care
  • Maternity benefits

In practice, most Hawaii employers purchase group health insurance plans from HMSA (Blue Cross Blue Shield of Hawaii) or Kaiser Permanente, both of which offer plans that meet PHCA requirements.

Employee Contribution Limits

Under the PHCA, employees cannot be required to pay more than half of the premium, and never more than 1.5% of their monthly wages. If the premium exceeds that amount, the employer must cover the difference. For many small businesses, this means the employer is paying 80% or more of the premium cost.

PHCA vs. ACA

The PHCA and the ACA operate simultaneously, but they have different rules:

  • PHCA threshold: 20+ hours/week for 4 consecutive weeks (applies to all employers)
  • ACA employer mandate: 30+ hours/week (applies to employers with 50+ FTEs)
  • PHCA employee contribution cap: 1.5% of wages
  • ACA affordability standard: Different percentage, calculated differently

Most Hawaii employers must comply with the PHCA regardless of size. If you also meet the ACA’s applicable large employer threshold (50+ FTEs), you’ll need to satisfy both sets of requirements.

⚠️ Common Mistake: Some mainland-based payroll providers will tell you that health insurance is only required under the ACA for employers with 50+ employees. That is correct on the mainland, but wrong in Hawaii. The PHCA applies to all Hawaii employers regardless of size. Even a business with one eligible employee must comply.

The Hawaii Payroll Filing Calendar

Keeping track of all your payroll deadlines is critical. Miss a filing and you’re looking at penalties, interest, and potential audit triggers. Here are the key deadlines every Hawaii employer needs to know:

Monthly / Semi-Weekly Filings

  • Form VP-1 (Hawaii state withholding deposit): Monthly depositors remit by the 15th of the following month. Semiweekly depositors (employers with more than $40,000 annual withholding) follow a schedule based on payday.
  • Federal payroll tax deposits: Monthly or semi-weekly, depending on your total tax liability. Follow the IRS deposit schedule.

Quarterly Filings

  • Form UC-B6 (Hawaii UI quarterly report): Due by the last day of the month following the end of each quarter: April 30, July 31, October 31, January 31
  • Federal Form 941 (Employer’s Quarterly Federal Tax Return): Due by the last day of the month following the end of each quarter (same schedule as UC-B6)
  • Form HW-14 (Hawaii withholding tax return): Due by the 15th day of the month following each quarter: April 15, July 15, October 15, January 15

Annual Filings

  • W-2s to employees: Due by January 31
  • W-2s / HW-2s to the Hawaii Department of Taxation: Due by January 31 (paper filers include transmittal Form HW-30; 10 or more must be e-filed starting in 2026). Form HW-3 is no longer required.
  • W-2s / W-3 to SSA: Due by January 31
  • Federal Form 940 (annual FUTA return): Due by January 31
💡 Pro Tip: January is the busiest time of year for Hawaii payroll. By January 31 you need to distribute W-2s to employees, file them with the SSA and the Hawaii Department of Taxation, and file Forms 940, 941, and UC-B6. The fourth-quarter HW-14 is due January 15. If you’re doing this yourself, start preparing in early January, or better yet, let a payroll service handle it.

Quick Reference: Filing Deadlines

Form What It Is Frequency Due Date
VP-1 Hawaii withholding tax deposit Quarterly / Monthly / Semiweekly 15th of following month (monthly depositors)
HW-14 Hawaii withholding tax return Quarterly 15th of month after quarter end
UC-B6 Hawaii quarterly UI report Quarterly Last day of month after quarter end
W-2 Wage and tax statement Annual Jan 31 (to employees, SSA, and state)
941 Federal quarterly tax return Quarterly Last day of month after quarter end
940 Annual FUTA return Annual January 31

Why Hawaii Payroll Is Harder Than Mainland States

Let’s be direct about this: Hawaii payroll is objectively more complex than payroll in most mainland states. Here’s why:

Programs That Don’t Exist Elsewhere

  • TDI is rare. Only a handful of states (Hawaii, California, New Jersey, New York, Rhode Island, and Puerto Rico) require temporary disability insurance. Most payroll systems are not built with TDI in mind.
  • PHCA is unique to Hawaii. No other state requires employer-provided health insurance under state law. Mainland payroll providers simply have no equivalent to manage.

The 12-Bracket Tax System

Most states have between 3 and 6 income tax brackets. Hawaii has 12. This means withholding calculations are more complex, and the margin for error in calculating the right amount is greater. If your payroll software doesn’t have Hawaii-specific withholding tables built in and regularly updated, you’re at risk of under- or over-withholding.

The HW-4 Factor

Because Hawaii uses its own withholding form (HW-4) rather than the federal W-4 for state purposes, employers must collect and maintain two separate withholding forms for every employee. Many mainland payroll platforms don’t accommodate this, and some employers don’t even realize they need the HW-4 until it’s too late.

GET Implications

Hawaii’s General Excise Tax (GET) is a gross receipts tax on all business income. While GET is not technically a payroll tax, it affects how you think about labor costs because you owe GET on your total gross revenue, and that revenue has to cover your payroll expenses. At an effective rate of 4.5% (4% + 0.5% county surcharge in most counties), this adds a meaningful layer to your total cost of employment.

Mainland Software Gaps

⚠️ Watch Out: Many popular mainland payroll platforms (including some major national brands) do not fully support Hawaii’s TDI and PHCA requirements. They may handle federal taxes and basic state withholding, but miss the Hawaii-specific programs entirely. Always verify that your payroll platform or provider can handle all five layers of Hawaii payroll before committing.

DIY Payroll vs. Professional Payroll Service

Given everything above, the natural question is: should you try to manage Hawaii payroll yourself, or should you hire a professional?

The Real Cost of DIY

DIY payroll in Hawaii is not the same as DIY payroll in a simple state like Texas or Florida (which have no state income tax). When you do it yourself in Hawaii, you’re responsible for:

  • Calculating withholding across 12 state tax brackets using HW-4 allowances
  • Making timely Hawaii withholding deposits and quarterly HW-14 returns
  • Filing quarterly UC-B6 returns
  • Managing TDI enrollment, tracking eligibility, and handling premium deductions
  • Ensuring PHCA compliance, tracking the 20-hour/4-week threshold for every employee
  • Producing accurate W-2s and filing them with the SSA and Hawaii by January 31
  • Staying current on rate changes, wage base adjustments, and regulatory updates

The time cost alone is significant. And the penalty cost of getting it wrong (late deposits, incorrect withholding, missed TDI enrollment) can quickly exceed what you’d pay a professional payroll service for the entire year.

What a Hawaii-Specialized Payroll Service Handles

A payroll provider that truly understands Hawaii will manage all five layers for you:

  • Accurate withholding calculations for both federal and Hawaii state income tax
  • Timely deposit of all payroll taxes (Hawaii withholding, federal deposits, UI)
  • Quarterly and annual filings (UC-B6, 941, HW-14, W-2s)
  • TDI enrollment tracking and premium management
  • PHCA eligibility monitoring and compliance documentation
  • Direct deposit, pay stubs, and employee self-service
  • Year-end reporting and reconciliation
💡 Bottom Line: For most Hawaii small businesses with 1–50 employees, a professional payroll service costs less than you think, and far less than the penalties, back taxes, and stress of doing it wrong. Get a free quote to compare.

Go Deeper: HawaiiPayrollGuide.com

This article gives you the big-picture overview of Hawaii payroll. For detailed, topic-by-topic deep dives, visit our sister site HawaiiPayrollGuide.com, which covers:

Sources & Official Resources

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Let PDS Handle Your Hawaii Payroll

Five layers of payroll taxes. TDI. PHCA. 12 tax brackets. Monthly deposits. Quarterly filings. Annual reconciliations. You don’t have to manage all of this yourself. Pacific Data Services has been doing Hawaii payroll since 1969, longer than almost anyone else in the state. Local team. Personal service. No long-term contracts.

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Legal & Tax Disclaimer

This article is for general informational purposes only and does not constitute legal, tax, or professional advice. Employment laws, tax regulations, and compliance requirements change frequently. The information on this page reflects our understanding as of the date noted above and may not reflect recent changes in federal or Hawaii state law.

Do not act or refrain from acting based solely on the information in this article. Always consult a qualified attorney, CPA, or HR professional familiar with Hawaii law before making payroll, HR, or compliance decisions for your business.

Pacific Data Services and Hawaii Business Hub make no warranties regarding the accuracy, completeness, or timeliness of the information presented here.