Withholding Tax – For Employers

Overview

Employers need to withhold Hawaii income taxes on employee wages. Employers then pay the withheld taxes to the State of Hawaii, Department of Taxation (DOTAX). Employees reconcile their withholding taxes paid as part of their Individual Income tax return. Withholding is required on:
  (a) Wages for services performed in the State.
  (b) Wages for services performed outside the State if:
    1. The services are performed by an employee whose regular place of employment for services for the employer is in the State; OR
    2. The wages are paid out of an office in the State or a field office of an employer whose head office is in the State.

Federal withholding rates are subject to change by the IRS. For information on Hawaii rates, please refer to the Appendix of Booklet A, Employer’s Tax Guide for tax withholding rates and tables.

All withholding taxpayers need to file returns quarterly (due April 15, July 15, October 15, and January 15) using Form HW-14. Form HW-3 (with HW-2s attached) is due annually on February 28. Supplemental returns will not be accepted. If changes need to be made to a return already submitted, please file an amended return for that filing period.

What’s New? (Beginning January 1, 2020)

  • Mandatory e-filing of withholding tax returns for employers whose annual tax liability exceeds $40,000 for taxable periods beginning January 1, 2020 [Tax Announcement 2019-11: Mandatory electronic filing of withholding tax returns for employers whose annual liability exceeds $40,000]. Failure to comply with this requirement results in a penalty of two percent (2%) of the amount of tax required to be shown on the return.
  • Beginning Tax Year 2020, the Form HW-3, Employer’s Return and Reconciliation of Hawaii Income Tax Withheld from Wages, will no longer be required.
    IMPORTANT: Form HW-3 is still required for Tax Year 2019 and is due February 28, 2020.
    • HW-3 will be simplified as a transmittal for W-2 or HW-2 forms and will only be necessary for paper submissions of HW-2.
    • Taxpayers using Hawaii Tax Online will be asked to submit the HW-2 forms by (1) manually entering the data into the web form, (2) using simple file upload with Excel, or (3) upload using the bulk filing system (a.k.a., FSET).
  • Booklet A, Employer’s Tax Guide provides detailed instructions regarding withholding taxes.

Frequently Asked Questions (FAQs)

General

Q: How do I get a withholding (WH) account number?
A: Use Form BB-1 to request a withholding (WH) account number. You may also add a withholding account on Hawaii Tax Online if you already have a login.

Q: How much does it cost to obtain a Withholding account?
A: There is no fee to open a withholding account.

Q: Can I e-pay or e-file my returns?
A: Absolutely! All taxpayers are encouraged to e-file or e-pay to ensure that transactions are posted quickly and accurately.

Q: Do I need to issue employees Form W-2/HW-2?
A: Yes, issue employees Form W-2 or HW-2 by January 31 and submit a copy of the Form W-2 or HW-2 information to DOTAX by February 28 using Form HW-3.

Q: What’s the difference between IRS Form W-2 and Hawaii Form HW-2?
A: The forms are essentially the same. Either can be issued to your employees. DOTAX accepts the IRS Form W-2 or our Form HW-2.

Q: Why do I have two (2) withholding tax account numbers, one with an “R” at the end?
A: Each withholding taxpayer has two tax numbers:

  • WH-###-###-####-01 is the withholding periodic account.
  • WH-###-###-####-01R is the withholding annual/reconciliation account.

The account is generally referred to without the “R” at the end. The account with the “R” at the end is used to reconcile your withholding accounts annually. [NOTE: Taxpayers who open a withholding account after January 1, 2020 will only have one tax number. No “R” account will be assigned.]

Q: If I hire seasonal, part-time, and full-time employees in the State of Hawaii, do I need to withhold taxes for all types of employees?
A: Yes. Any payment of wages to employees may be subject to withholding tax. Please refer to Booklet A, Employer’s Tax Guide (Revision 2017) for more information on withholding requirements.

Return Filing

IMPORTANT: Return due dates are different from payment due dates.

Q: How do I e-file my returns?
A: E-file your returns using Hawaii Tax Online or for uploading bulk files, you may set up a secure file transmission (FSET). For assistance with setting up FSET, please complete and submit Form EF-2, Hawaii Bulk Filing System Registration.

Q: Do I need to e-file my returns?
A: For taxable periods beginning on or after January 1, 2020, taxpayers whose withholding tax liability exceeds $40,000 annually must e-file. Failure to comply with this requirement will result in a penalty of two percent (2%) of the amount of tax required to be shown on the return.

Q: I’ve made a mistake on my return, what do I do?
A: If you make a mistake on your return, you can file an amended return.

Q: If my business operates on a fiscal year, can I file withholding returns according to my quarterly schedule?
A: No. All withholding taxes are filed on a set quarterly (calendar year) schedule.

Q: Can I get an extension of the return filing due date?
A: Submit Form HW-26 to request approval of an extension for the filing of Form HW-3 and its associated Form HW-2s. Form HW-26 is only an extension of time to file, not an extension of time to pay. You must indicate a reason for the extension request. Your request will only be granted for a period of 60 days or less and is subject to approval.

Q: What if I file a return late?
A: Penalty and interest will be assessed.

Q: Can I eliminate using the periodic HW-14 forms by just filing the annual HW-3 form at year’s end?
A: No. Both returns and payments are required. DOTAX needs the return to reconcile your payments and ensure that we are posting your payments to the right accounts.

Payments

IMPORTANT: Payment due dates are different from return due dates.

Q: How do I e-pay withholding tax?
A: You can use Hawaii Tax Online to make a payment (1) from your checking or saving account (free) or (2) using a credit or debit card payment (fees apply).

Q: Am I required to make e-payments?
A: Taxpayers with withholding tax liabilities over $40,000 must e-pay. Failure to meet this requirement will result in the assessment of a two percent (2%) penalty of the amount of tax required to be shown on the return.

Q: When do I need to pay withholding tax?
A: Payment frequency depends on your withholding tax liability:

Withholding tax liability Payment frequency Due date
Greater than $40,000 Semi-weekly Wednesday: If taxes are withheld for wages paid the immediately preceding Wed, Th, or Friday
Friday: If taxes are withheld for wages paid the preceding Saturday, Sunday, Monday, or Tuesday
$5,000 – $40,000 Monthly 15th day of the month following the close of the preceding monthly period
Less than $5,000 Quarterly 15th day of the month following the close of the preceding quarter (April 15, July 15, October 15, January 15)

Q: What if I pay late?
A: Penalty and interest will be assessed.

Q: How do I get a refund of an overpayment?
A: You may use Form HW-14 to reconcile your tax due and payments quarterly.

Q: If I pay my withholding tax throughout the year, do I still need to file a return?
A: Both returns and payments are required. If you do not file a return, your payment may not be posted to your account properly. A return is needed to completely post your payment to your withholding account.

Other FAQs

Q: What should I do if an employee fails or refuses to complete a HW-4 form?
A: If you do not receive a Form HW-4 from an employee, you must withhold the tax as if the employee is single and claiming zero exemptions.

Q: What do I do if an employee has claimed excessive withholding allowances (10 or more exemptions) or has misstated information on their HW-4?
A: Please send a copy of the Form HW-4 for that employee to the Tax Assessor in the district office where you file your withholding tax returns. For more information relating to withholding allowances see Tax Information Release No. 95- 4.

Q: Can I be audited for withholding taxes?
A: Yes.

Q: As a business owner, am I personally liable for withholding tax debt?
A: Yes. If an employer fails, neglects, or refuses to deduct and withhold form the wages paid to an employee, the employer will be liable to pay the amount of tax to the State.

References:

Page Last Updated: March 17, 2020