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Understanding Tax Obligations For Businesses In Hawaii

Understanding Tax Obligations For Businesses In Hawaii
February 04, 2024

Dealing with taxes can feel like navigating rough waters for businesses big and small in Hawaii. The Aloha State's unique General Excise Tax (GET) applies to nearly every business transaction here.

This article promises a lifeline, outlining the essentials of tax obligations so Hawaiian businesses can stay compliant without drowning in confusion. Keep reading – clarity awaits.

  Key Takeaways

  • Hawaii businesses must pay the General Excise Tax (GET) on all transactions, with a base rate of 4% and potential county surcharges.
  • Corporate income tax rates vary from 4.4% to 6.4%, depending on profits, and must be filed using Form N-30 for C corporations or Form N-35 for pass-through entities.
  • Employers are responsible for withholding taxes from employees' paychecks and filing them quarterly using Form HW-14, plus annual summaries with Form HW-30.
  • New businesses in Hawaii face a 4% unemployment insurance tax on the first $56,000 earned by each employee.
  • Businesses need to keep track of various state taxes such as use tax, public service company tax, county surcharges, fuel tax, liquor tax, and insurance premiums taxes.

Understanding Hawaii's Business Taxes

Delve into the unique landscape of Hawaii's business taxes, where tropical breezes meet complex tax codes. From the ubiquitous General Excise Tax to nuanced corporate and employment tax considerations, we're unpacking the essentials every island business needs to master.

General Excise Tax (GET)

Hawaii's General Excise Tax is a key part of doing business in the Aloha State. Unlike a sales tax, GET applies to all business activities—not just selling goods but services too.

The base rate sits at 4%, with additional county surcharges that vary. It may feel tricky, but understanding GET is vital for compliance and smart budgeting.

To start, you'll need to get a GET license through Hawaii Tax Online or by submitting Form BB-1. There's also a one-time fee of $20. Once set up, you're responsible for filing periodic returns by the 20th day following your tax period’s end.

Stay alert! Missing deadlines can lead to penalties stacking up fast— and 5% monthly until you hit the 25% cap. Keep on top of these details; it will save headaches and keep your finances on track.

Corporate Income Tax

Corporations in Hawaii face a corporate income tax with rates that vary based on their earnings. If your business is raking in profits, expect to pay anywhere from 4.4% to a max of 6.4%.

Companies must keep tabs on these numbers as they directly affect the bottom line.

Mark your calendars - Form N-30, the corporate tax return, is due by the twentieth day of the fourth month after your fiscal year wraps up. C corporations better be punctual with those quarterly estimated tax payments too, or risk falling behind.

S corporations follow their own set of rules; make sure you're up to speed on which applies to you. Next up: Withholding Tax— let's dive into what it takes to manage taxes related to your workforce.

Withholding Tax

Hawaii businesses must take out taxes from their employees' paychecks. This money pays for things like Social Security and income tax. The amount you need to hold back is in the employer tax guide from the Department of Taxation.

You must send in withholding tax forms four times a year. Use Form HW-14 and make sure it gets there by the 15th day after each quarter ends. If your business withholds over $40,000 annually, you've got to file and pay online.

Don't forget that the big deadline is January 31st! By then, employers must turn in Form HW-30 along with Forms W-2 and HW-2.

Unemployment Insurance Tax

Moving from withholding taxes, it's essential to tackle the unemployment insurance tax. If you run a business in Hawaii, you'll need to pay this for your employees. As of 2023, new businesses must pay a 4% tax on the first $56,000 earned by each worker.

This cost is part of being an employer in Hawaii – whether you're self-employed or own a large company. Don't forget, paying unemployment insurance helps protect workers who might lose their jobs through no fault of their own.

It's not just about following rules; it’s also about supporting the community and workforce stability. Make sure to include this when planning your tax payments throughout the year!

Steps to Pay Your Hawaii Business Taxes

Diving into the practicality of tax compliance, we'll guide you through the essentials to ensure your Hawaiian business stays on top of its fiscal responsibilities— let's decode the process and set you up for a smooth financial sail.

Keep reading to navigate these waters with ease.

Establishing Corporate Income Tax Obligations

Running a business in Hawaii means paying state corporate income taxes. Your tax rate varies based on your company's earnings.

  • Get an Employer Identification Number (EIN). You'll need this for tax forms and payments.
  • Learn about pass - through entities. If your business is one, report taxes on personal returns.
  • Determine your tax bracket. Corporate income taxes in Hawaii have rates from 4.4% to 6.4%.
  • Choose the right form. C corporations file using Form N-30, while pass-through entities use Form N-35.
  • Mark the deadlines. Pay quarterly estimated taxes to avoid penalties later on.
  • Check for credits and deductions. These can lower the amount of tax you owe.

Determining Employment Taxes

Figuring out employment taxes in Hawaii requires attention to detail. You must know what to withhold from employee paychecks.

  • Get a Federal Employer Identification Number (FEIN) from the IRS. This number tracks your business tax filings.
  • Register as an employer with the Hawaii Department of Labor. They'll guide you on unemployment insurance tax.
  • Understand that wages, salaries, and certain benefits are subject to withholding tax. You'll take part in employees' pay for taxes.
  • Determine your payment frequency for withholding taxes based on past tax liabilities. This could be monthly or quarterly.
  • Use the latest state tax tables to calculate how much to withhold for state income taxes. These tables show rates based on earnings and filing status.
  • Withhold federal taxes, including social security and Medicare, using federal guidelines.
  • Set aside withheld amounts in a trust fund account. You'll need these funds when it's time to pay the taxes collected.
  • Keep accurate records of all withheld amounts and employer contributions for reference and reporting purposes.
  • File required periodic reports with both the IRS and Hawaii's Department of Taxation detailing your withholdings.
  • Keep up with any changes in tax laws that could affect how much you need to withhold from employee wages.

Additional State Tax Obligations

Hawaii's taxes for businesses can be complex. Here's a breakdown of other state tax obligations you should know about.

  • Use Tax on Purchases: If your company buys goods from out-of-state vendors, you'll pay use tax. It's like general excise tax but for items not taxed at the time of purchase.
  • Public Service Company Tax: This affects businesses providing utilities or certain services. Check if your service falls under this category, as it might change your tax responsibilities.
  • County Surcharges: Some Hawaii counties add extra charges to the state GET rate. These surcharges vary by county and effective dates.
  • Fuel Tax: Companies that buy fuel for vehicles or equipment must handle fuel tax. This is separate from other taxes and depends on how much fuel you use.
  • Liquor Tax: Selling or manufacturing alcoholic beverages means dealing with liquor taxes. The amount varies based on what kind of alcohol and how much you sell.
  • Insurance Premiums Taxes: If your business provides insurance services, there's a tax on premiums you'll need to pay attention to.
  • Rental Motor Vehicle, Tour Vehicle, and Car-Sharing Vehicle Surcharge Tax: Rentals come with their own set of taxes. Make sure you're aware of these additional fees if this is part of your business offerings.

Preparing to File and Pay Taxes

Getting ready to file and pay taxes is a key duty for businesses. In Hawaii, there are specific steps to take and things to keep in mind.

  • Check due dates for GET returns. You must file these returns on time.
  • Register online for a GET license through Hawaii Tax Online. Pay the $20 fee.
  • Gather documents showing gross income. This includes all the money your business made.
  • Report income on Schedule C if you're self-employed. For other business structures, use the correct tax form.
  • Use QuickBooks or similar tools to track sales and expenses. These help when doing taxes.
  • Set aside money regularly for taxes. This avoids surprises at tax time.
  • Calculate and remit withholding tax if you have employees.
  • File unemployment insurance taxes on time. This helps avoid penalties.
  • Keep personal income separate from business revenue. Use different bank accounts.
  • Obtain a Federal Employers Identification Number if needed for your business type.
  • Pay sales and use tax following the South Dakota v. Wayfair ruling requirements if applicable.
  • Ask a bookkeeper or accountant for help with complex issues or questions about deductions.

Conclusion

Understanding your tax obligations in Hawaii is key to running a successful business. Remember, each tax has its own rules and deadlines. Keep track of what you owe, from General Excise Tax to income tax, and make sure to file on time.

Check out resources like Hawaii Tax Online for help with forms and payments. Stay informed, keep good records, and when in doubt—reach out for professional guidance!

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writer at DEZCOOL
Dynamic SEO expert, globally-minded content marketer, and Academic Economist. Enriched by experiences across Rio de Janeiro, Seattle, Lisboa, and Honolulu.
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