Hawaii LLC Taxes
Hawaii LLCs are classified as pass-through tax entities by default, which means they don’t pay corporate income tax. Instead, LLC revenue passes through the business to the members/owners, who report their share of the profits as personal income on their taxes. LLC member income is subject to the 15.3% federal self-employment tax (12.4% for social security and 2.9% for Medicare). Business owners also need to be aware of the Hawaii General Excise Tax and other state, federal, and local taxes. In this guide, we’ll help you prepare for tax season as a Hawaii LLC.
In this article, we’ll cover:
How Are Hawaii LLCs Taxed?
By default, single-member LLCs (SMLLC) are taxed the same as sole proprietors, whereas multi-member LLCs are taxed as general partnerships. Here are the federal tax forms you can expect to file as an LLC owner:
- Single-member LLC—Form 1040 (usually Schedule C, but some SMLLCs file C-EZ, E, or F)
- Multi-member LLC—Form 1065
A Hawaii LLC has the option of electing S-corp or C-corp status and being taxed as a corporation. We explain these options below.
Hawaii LLCs taxed as S-corp
An LLC with S-corp status is taxed as a pass-through entity, just like a default LLC. This means that S-corps don’t pay corporate income tax. As a bonus, S-corps can make distributions to members that aren’t subject to the 15.3% self-employment tax.
Before you get too excited, be aware that S-corps are required to pay a reasonable salary to members who work for the LLC, so LLC S-corp owners can’t entirely avoid paying self-employment tax. If you think S-corp status might be a good choice for your business, consult an accountant before you take the leap.
To elect S-corp status, you file IRS Form 2553. S-corps report their profits and losses to the IRS on Form 1120-S.
LLCs taxed as C-corp
LLCs can also be taxed as C-corporations. C-corps in Hawaii need to pay the 21% federal corporate income tax and the applicable Hawaii corporate income tax, but they’re also eligible for more tax breaks than regular LLCs. Filing C-corp taxes is complex, so it’s smart to get advice from a CPA if you’re interested in taking this step.
Hawaii State Income Tax
Hawaii LLC members pay state personal income tax at a graduated rate, ranging from 1.4% to 11%, based on income level. You can find out how much you can expect to pay using the tax tables on the Hawaii Department of Taxation website.
LLC C-corps in Hawaii need to pay Hawaii corporate income tax, which ranges from 4.4% to 6.4%:
|Taxable income||Tax rate|
|$25,000 or less||4.4%|
|$25,001 to $100,000||5.4% minus $250|
|Over $100,000||6.4% minus $1,250|
Hawaii General Excise Tax (GET)
Instead of a sales tax, Hawaii has a business privilege tax called the General Excise Tax. The GET tax rate is 0.15% for Insurance Commission, 0.5% for wholesaling and manufacturing, and 4% for all other products and services. Businesses have the option of passing this tax on to their customers, as long as they include the tax as a separate line item on the receipt.
To start paying this tax, you first need a GET License, which requires a one-time $20 fee.
Local Hawaii Taxes
Most counties in Hawaii add a local surcharge (up to 0.5%) to the state General Excise Tax. Additional local taxes include real property tax and taxes on certain industries, such as alcohol and tobacco. You should contact your local government office and find out what local taxes you’ll need to pay. Don’t forget you’ll need to pay taxes both where your business office is located and anywhere else you do business.
Other Taxes in Hawaii
We’re not done yet! Here are some other Hawaii taxes to be aware of.
Hawaii State Employer Taxes
Plan to hire employees? Then you’ll need to pay for unemployment insurance and workers’ compensation:
- Unemployment Insurance (UI) Tax—The unemployment insurance tax rate for new employers is 4%. After that, your tax rate will be based on your payroll and the amount of UI benefits charged, with a maximum rate of 6.2%.
- Workers’ Compensation—Hawaii requires businesses with one or more employees to purchase workers’ compensation insurance. Your insurance premium will depend on the number of employees and the risk involved in their work. The average rate for workers’ compensation in Hawaii is around $1.70 per $100 of covered payroll.
Certain industries in Hawaii need to pay additional taxes, such as:
- Cigarette, Tobacco, and Liquor Tax
- Conveyance Tax
- Franchise Tax on Financial Institutions
- Fuel Tax
- Public Service Company Tax
- Rental Vehicle, Motor Vehicle, and Car-Sharing Vehicle Taxes
- Transient Accommodations Tax
Visit the Hawaii Department of Revenue for more information.
Do Foreign LLCs in Hawaii Need to Pay Hawaii Taxes?
Yes. If you want to do business in the Aloha State but your business was formed elsewhere, you’ll need to pay Hawaii income tax, General Excise Tax, and all other applicable taxes on income generated in Hawaii.