- Hawaii lawmakers approved a 13% rate on household income exceeding $1 million for tax year 2026.
- The new policy applies a 2% surcharge on top of the existing 11% marginal tax bracket.
- Approximately 90% of local taxpayers will receive relief through adjusted thresholds and lower-bracket shifts.
(HAWAII) – Hawaii lawmakers approved Senate Bill 3125 on April 28, 2026, creating a new millionaire tax bracket that applies an effective 13% top marginal rate to household income above $1 million for tax year 2026, with returns filed in 2027.
The new rate works as a 2% surcharge on income over $1 million, layered on top of Hawaii’s existing top ordinary income rate of 11%. The change leaves lower brackets in place and shifts tax thresholds upward, a move lawmakers said would reflect higher wages and living costs.
The package was built to do two things at once: raise revenue at the top and preserve tax relief for most residents. Lawmakers said roughly 90% of local taxpayers would benefit from the threshold changes, while households above $1 million would face the new top rate on income over that line.
That matters most for high-income wage earners, investors with large ordinary income, and owners of pass-through businesses who report business income on individual returns. The bill text, as described by legislative leaders, also included language meant to protect small business owners who file as individuals rather than through a corporation.
The change is a Hawaii income tax change, not a federal one. Immigrants and visa holders who live and work in Hawaii still must sort out federal residency rules separately under State and federal systems also use different rules, rates, and forms. Federal income tax returns still use Form 1040 or, in some cases, Form 1040-NR. Hawaii’s new bracket does not change federal tax brackets, treaty rules, FBAR filing, or Form 8938 reporting for foreign assets.
| Item | Before Senate Bill 3125 | After Senate Bill 3125 |
|---|---|---|
| Top Hawaii ordinary income rate | 11% | 13% on income over $1 million |
| Income above $1 million | Taxed at existing top rate structure | Subject to new 2% surcharge |
| Lower and middle brackets | Existing thresholds | Thresholds shift upward |
| Relief for most residents | Already scheduled in part | Preserved; lawmakers said about 90% benefit |
| Capital gains cap | 7.25% | No change in final package |
Practical effect depends on where a household’s income falls. A household with $950,000 of Hawaii taxable income would not enter the new top bracket. A household with $1.2 million would pay the added 2% only on the $200,000 above the threshold, not on the full amount.
That example produces $4,000 in added Hawaii tax from the surcharge itself. The exact bill will still depend on deductions, filing status, and how Hawaii computes taxable income. High earners with uneven income should watch estimated payment timing closely.
Lawmakers paired the increase with relief lower down the rate schedule. They said a typical family of four would save about $300 to $400 a year, or roughly $2,000 over five years. The state framed the package as a budget-gap measure that avoided broader tax increases.
? Deadline Alert: The new bracket applies to tax year 2026. Hawaii taxpayers will generally report it on returns filed in 2027. Estimated tax payments due during 2026 may need adjustment now.
Senate Bill 3125 did not adopt more aggressive proposals that circulated during the session. One proposal would have taxed long-term capital gains as ordinary income. Another would have raised the capital gains cap from 7.25% to 9%. Neither made the final package.
Those proposals mattered because Hawaii still taxes wage income and investment income differently at the top. Ordinary income for high earners reaches 11% under the prior structure, while long-term capital gains remain capped at 7.25%. Legislative estimates said more than 70% of long-term capital gains go to taxpayers with incomes above $400,000.
The revenue estimates attached to those earlier capital gains ideas were not small. Taxing capital gains as ordinary income was projected to raise about $85 million in the first year from residents alone. Raising the cap to 9% was projected to raise about $44 million. Similar ideas appeared in 2024, then fell away again in 2026.
No Hawaii property tax change for millionaires was included in this package. The bill also mentioned a 0.5% annual surcharge on assessed value above $1 million for some non-owner-occupied property starting July 1, 2026, but that measure was not part of Hawaii’s income tax package.
A separate bill, Senate Bill 2866, moved alongside the tax debate and expands rent help for seniors, also known as kupuna. It directs $2.2 million over two years to the Hawaii Public Housing Authority to meet demand from older renters on fixed incomes. That is housing aid, not an income tax rate change.
Immigrants with Hawaii income should treat the state change as one piece of a larger filing picture. A new green card holder or H-1B worker with foreign accounts still may need FinCEN Form 114, known as the FBAR, if aggregate balances exceeded $10,000. Some taxpayers also must file Form 8938 with their federal return. IRS rules are outlined at .
| Federal filing item for immigrants | Threshold or rule | Deadline for tax year 2026 |
|---|---|---|
| Form 1040 or 1040-NR | Depends on tax residency status under Publication 519 | April 15, 2027, extension generally to October 15, 2027 |
| FBAR, FinCEN Form 114 | $10,000 aggregate foreign account balance | April 15, 2027, automatic extension to October 15, 2027 |
| Form 8938 | Often starts at $50,000 for single U.S. residents | Filed with federal return |
⚠️ Warning: The new Hawaii rate does not replace federal filing duties. A taxpayer can owe Hawaii tax, federal tax, and foreign asset reporting at the same time.
Households near the $1 million line should review withholding and estimated payments before year-end 2026. Business owners with pass-through income should run projections now, especially if income can swing sharply in the fourth quarter. Recent arrivals should confirm whether they are state residents, federal residents, or dual-status filers. If treaty benefits, foreign tax credits, stock compensation, or foreign business income are involved, a CPA or enrolled agent with international tax experience should review the return before filing.
> ⚠️ **Disclaimer**: This article is for informational purposes only and does not constitute tax, legal, or financial advice. Tax situations vary based on individual circumstances. Consult a qualified tax professional or CPA for guidance specific to your situation.
