(HAWAII) – Hawaii lawmakers finalized income tax relief for working families on April 28, 2026, approving Senate Bill 3125, SD1, HD1, CD1 while also imposing a $40 million annual cap on solar industry tax credits or incentives.

The agreement preserves tax cuts first passed in 2024 and keeps them in place for most resident taxpayers. At the same time, it redraws part of the state’s tax structure by creating a new high-income bracket and tightening support for one of Hawaii’s clean energy industries.

Under the final bill, income tax relief remains in place for joint filers earning under $350,000, heads of household earning under $262,500, and single filers earning under $175,000. Lawmakers said the relief applies to approximately 90% of Hawaii’s local families.

Negotiators also dropped a proposed additional 1% increase on the top three income tax brackets. That decision preserved the earlier tax-cut structure and, in the bill’s design, avoided a broader increase on higher individual earners, including small business owners who file as individuals.

House and Senate negotiators added a new bracket to offset revenue lost from the tax cuts. The measure applies a marginal tax rate of 13% to households earning $1 million or more and to single filers earning $500,000 or more.

The shape of the final compromise reflects two competing pressures inside Hawaii’s tax debate. Lawmakers kept broad-based income tax relief for most households, but they also moved to recover some revenue from top earners after earlier cuts reduced the state’s expected intake.

Those earlier cuts carry a large price tag. The 2024 tax cuts are estimated to cost the state $740 million in foregone revenue.

That fiscal backdrop helps explain why the final measure does more than extend income tax relief. It also narrows support elsewhere in the tax code, most notably through the new limit on solar-related incentives.

The legislation places a $40 million annual cap on solar industry tax credits or incentives. The cap creates immediate challenges for Hawaii’s solar sector and marks a tighter limit on one of the main tools the state has used to encourage solar energy development.

In practical terms, the cap puts a hard annual ceiling on the value of those incentives. Hawaii’s solar industry now faces a fixed limit rather than open-ended access to tax credits, a shift that could affect how projects are timed and how benefits are allocated within a given year.

The bill therefore delivers a split result. Most local families remain covered by the state’s income tax relief, while high earners face a new bracket and the solar industry absorbs a new fiscal constraint.

Tax administrators now have to apply the new income thresholds, the 13% marginal rate for top earners, and the $40 million annual cap tied to solar incentives. The Legislature’s final action on April 28, 2026 locked those choices into the state’s tax framework, pairing Hawaii income tax relief with a tighter limit on support for solar development.