July 8, 1996


Act 187, Session Laws of Hawaii 1996, amended section 235-61, Hawaii Revised Statutes (HRS), relating to the withholding of tax on wages. The maximum rate of withholding of taxes from wages was decreased from 10 percent to 8 percent.

The Department of Taxation plans to publish and mail a revised Booklet A Employer's Tax Guide reflecting the new wage withholding rates to all registered employers by September 1, 1996. Employers may choose to treat the new tables as effective beginning on the date they receive the new Booklet A. If an employer makes a good faith effort to implement the new tables as soon as practicable, but is unable to implement them by October 1, 1996, the employer may treat the new tables as effective beginning on the date that the employer implements them.

Section 235-61, HRS, requires every employer to withhold State income taxes on wages. The principal purpose of wage withholding is to assure current payment of the correct amount of State income taxes. In general, the new tables reduce the amount of State income tax required to be withheld on wages paid to employees.

Many employees experience substantial overwithholding of State income taxes. Overwithholding significantly reduces take-home pay for these individuals, who must wait to receive the amounts overwithheld until they file their income tax returns the following year and receive refunds from the State.

Section 235-97, HRS, imposes a penalty on individuals who fail to make timely payments of their estimated tax. Subject to certain exceptions, an individual avoids this penalty if his or her State income tax withholding on wages and quarterly estimated tax payments are at least equal to 90 percent of the tax liability for the current year or 100 percent of the tax liability for the immediately preceding year. Under the withholding tables, an employee whose income consists predominantly of wages generally satisfies the obligation to make timely payments of estimated tax if he or she properly completes Form HW-4.

The Department points out that employees who are affected by the adjustment in the new tables may choose to maintain their current amount of withholding. Those who want to do so should ask their employers or payers to withhold additional dollar amounts and should provide a new Form HW-4 to each employer.

Director of Taxation