Hawaii lawmakers have approved a new tax rule that targets high earners. Senate Bill 3125 creates a 13% top tax rate for household income over $1 million starting in tax year 2026. This change adds a 2% surcharge on top of the current 11% rate and aims to raise money while helping most residents pay less.
The bill passed on April 28, 2026. It shifts tax brackets upward for lower incomes to match rising wages and costs. About 90% of Hawaii taxpayers will see some relief from these adjustments.
How the New Hawaii Millionaire Tax Works
The core of the change is simple. Hawaii’s top ordinary income tax rate was already 11%. Now, income above $1 million gets an extra 2% surcharge. This makes the effective rate 13% just for that portion over $1 million.
Lower brackets stay the same but move to higher income levels. For example, a family might save $300 to $400 a year. Over five years, that adds up to about $2,000 for a typical family of four.
Take a household with $1.2 million in taxable income. The first $1 million follows the old rules up to 11%. The extra $200,000 faces the full 13%, adding $4,000 in state tax from the surcharge alone. Real amounts depend on deductions, filing status, and other factors.
This applies to wages, investment income reported as ordinary, and pass-through business income on personal returns. Small business owners who file as individuals get some protections in the bill text.
Who Faces the 13% Rate
High earners feel this most. Think wage workers with big salaries, investors with large ordinary income, or business owners whose profits flow to personal taxes.
Households near $1 million should check now. If income spikes late in 2026, adjust withholding or estimated payments. The surcharge hits only income above the line, so steady earners plan easier.
Lawmakers designed it to avoid broad hikes. It fills a budget gap without touching everyone.
Relief for Most Taxpayers
The bill pairs the top rate with help below. Thresholds rise to fit higher living costs. Lawmakers say 90% of filers benefit.
A standard family sees real savings. Those shifts mean lower effective rates for middle incomes. This keeps the change fair, they argue.
What Proposals Got Left Out
Not all ideas made it. One plan taxed long-term capital gains as ordinary income. That could have raised $85 million in year one from residents. Another bumped the capital gains cap from 7.25% to 9%, eyeing $44 million.
Hawaii still treats capital gains lighter. The top cap stays 7.25%, even as over 70% of those gains go to folks over $400,000 income. No property tax hit for millionaires here either.
A small 0.5% surcharge on non-owner-occupied property over $1 million starts July 1, 2026. But that’s separate from income taxes.
Key Dates and Deadlines
Mark your calendar. The rules apply to 2026 income, filed in 2027. Most returns due April 15, 2027, with extensions to October 15.
Estimated payments during 2026 might need tweaks if you’re close to $1 million. Pay on time to avoid penalties.
Tips for Immigrants and New Residents
Newcomers pay attention. This is state tax only. Federal rules stay separate.
Green card holders or H-1B workers with Hawaii income follow U.S. residency tests. You might file Form 1040 or 1040-NR by April 15, 2027.
Foreign accounts over $10,000 total need FBAR by April 15, 2027 (auto extension to October). Form 8938 kicks in at $50,000 for singles. Treaties or credits add layers, so check.
Recent arrivals confirm status: full resident, part-year, or nonresident. A tax pro helps with stock pay, foreign business, or swings.
Planning Steps Before 2026 Ends
Review now if you’re high income. Run numbers on pass-throughs or year-end bonuses. Business owners project fourth-quarter flows.
Near the line? Model scenarios. Families below get automatic relief from shifts.
Everyone: Update withholding. Hawaii tax pros can guide.
This change does not replace federal duties. You could owe state, federal, and report foreign assets all at once.
Conclusion
Hawaii’s new 13% millionaire tax via Senate Bill 3125 balances revenue needs with relief for most. High earners over $1 million pay more on excess income, while 90% see lower burdens. Plan ahead for 2026 filings in 2027, especially if you’re an immigrant or business owner. Consult a tax expert for your setup. This keeps Hawaii’s taxes fair amid rising costs.
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