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How Your Corporation Will Be Taxed

In this guide, you'll learn about the main types of tax in Hawaii that apply to corporations, including sales, self-employment, corporate and federal taxes.

How your corporation is taxed will depend on whether it's an S Corp or a C Corp.

Hawaii State Tax

There are two types of Hawaii tax you must pay to the HI Department of Taxation and Finance: income and general excise. Depending on how your business is set up, you may also need to pay use tax.

Important: All of these taxes apply whether you have a C Corp or an S Corp.

 

Hawaii Income Tax

Anyone who takes earnings out of your corporation will need to pay HI income tax and will be taxed at the state's standard rates. Any employees will also need to pay state income tax. The current income tax brackets for Hawaii range from 1.4 percent to 11 percent depending on what your taxable income amount is.

You can use the tax tables provided by the Hawaii tax department to get an idea of how much you'll need to pay, but consult with your accountant or tax advisor to ensure you pay the proper amount.

 

Hawaii General Excise and Use Tax

These tax types are similar enough that they're often categorized together. It's still important to understand the differences between them.

Hawaii General Excise Tax (GET)

Unlike most states, Hawaii does not have a sales tax. Instead Hawaii has a General Excise Tax or GET. The GET is assessed on all business activities. Businesses are subject to GET on their gross receipts from doing business in Hawaii. Gross receipts are total business income before any business expenses are deducted. Although it is common for businesses to charge their customers GET by visibly passing it on, it is not required by law. Businesses must pay GET to the Department of Taxation regardless of whether or not they charge their customers for it.

The state's General Excise Tax Law, Title 14, Chapter 237, contains an extensive list of items exempt from Hawaii GET.

The Hawaii GET rate is 0.15% for Insurance Commission, 0.5% for Wholesaling, Manufacturing, Producing, Wholesale Services, and Use Tax on Imports For Resale, and 4% for all others.

Hawaii Legislature has also authorized county governments to adopt a county surcharge on state GET at the 4% rate. The county surcharge does not apply to activities at the 0.5% and 0.15% rate.

The following counties have adopted a county surcharge:

  • City and County of Honolulu: 0.5% effective January 1, 2007 to December 31, 2030.
  • County of Kauai: 0.5% effective January 1, 2019 to December 31, 2030.
  • County of Hawaii: 0.25% effective from January 1, 2019 to December 31, 2019, and 0.5% January 1, 2020 – December 31, 2030.
  • County of Maui: Has not adopted a county surcharge.

Use our sales tax calculator to get an idea of what you'll need to pay, but always check with your accountant and the Hawaii Department of Taxation to find out whether your business is required to pay GET and ensure you remain in compliance.

HI Use Tax

If you purchase physical products outside the state for use in Hawaii from a seller who doesn't charge Hawaii General Excise Tax, you may need to pay use tax.

For example, if you buy furniture for your corporation from a company in a state that either doesn't have a sales tax or has a sales tax that is lower than the HI General Excise Tax, you'll be responsible for paying the HI use tax.

Federal Taxes for Corporations

Federal taxes can be complicated, so speak to your accountant or professional tax preparer to ensure that your Hawaii corporation is paying the correct amount, and that you're paying the correct individual amount.

Federal Self-Employment Tax

Whether and how you pay this tax depends on whether you have a C Corp or an S Corp.

Federal Taxes for C Corps

All shareholders who earn wages or a salary from a C Corporation must pay self-employment tax. This tax is administered by the Federal Insurance Contributions Act (FICA) and covers Social Security, Medicare and other benefits. The current self-employment tax rate is 15.3 percent.

You’ll be able to deduct some of your business expenses from your income when calculating how much self-employment tax you owe.

Here are some examples of how much self-employment tax you may need to pay, depending on your earnings:

  • On a salary of $43,000, you would pay self-employment tax of $6,579.
  • On a salary of $63,000, you would pay self-employment tax of $9,639.
  • On a salary of $83,000, you would pay self-employment tax of $12,699.
  • On a salary of $103,000, you would pay self-employment tax of $15,759.

Federal Taxes for S Corps

The Internal Revenue Service may allow your business to be treated as an S Corporation for tax filing purposes, provided it meets certain requirements. This can help you reduce the amount of self-employment tax you pay by allowing you to declare some of your income as salary (on which you'll pay self-employment tax) and other income as distributions (which are not subject to self-employment tax).

Speak to your accountant or professional tax preparer for more information on reducing your tax burden through an S Corporation tax election.

Treating your business as an S Corp can help you save money.

You can do this by making an “S Corporation Tax Election” with the IRS using Form 2553. We can file your Form 2553 with the IRS on your behalf.

File an S Corp Tax Election

Federal Income Tax

You must pay regular federal income tax on any wages or salary your corporation pays you, regardless of its type. The amount of income tax you pay depends on your earnings, current income tax bracket, deductions and filing status.

Speak to your accountant or tax professional for more information.

Taxes Specific to C Corporations

Regardless of the state where your corporation is based, corporate taxes can get pretty complicated. We provide some basic information here, but we stronglyencourage you to consult with a tax professional to ensure your corporation pays the right taxes in the right amounts to help you avoid penalties, fines and, worst of all, tax audits.

Corporate Tax

Unlike a limited liability company or an S Corporation, a C Corporation is required to file a corporate tax return and pay taxes on any profits.

When those profits are paid to shareholders as dividends, they will also be subject to taxation on the shareholders' personal tax returns.

This is often referred to as “double taxation,” and is one reason many business owners prefer to file their taxes as S Corporations.

Note: It is possible for a C Corp to file taxes as an S Corp. Consult with your accountant or professional tax advisor for more information.

Stock Dividends

A C Corporation may pay shareholders dividends as a share of the profits of the company. The value of dividends to which each shareholder is entitled depends on how many shares they own.

Dividends distributed to shareholders are taxed twice — first at the corporate level as profit (on the corporation’s Form 1120, the U.S. Corporation Income Tax Return) and again at the individual level as stock dividends (on the shareholder's Form 1040, the U.S. Individual Income Tax Return).

Taxes Specific to S Corporations

You must pay federal income tax on both your salary and any distributions you take from the business.

Need someone to file your corporate taxes?

Bizee provides a complete Business Tax Filing service.

Get Help with Taxes

Employee and Employer Taxes

If you pay employees, there are some slightly different tax implications. Speak to your accountant to get clear guidance for your unique situation.

Employer Payroll Tax Withholding

All employers are required to withhold federal taxes from their employees’ wages. You’ll withhold 7.65 percent of their taxable wages, and your employees will also be responsible for 7.65 percent, adding up to the current federal tax rate of 15.3 percent.

Speak to your accountant for more information.

Employees May Need to File Tax Returns

Regardless of whether you withhold federal and state income tax, your employees may need to file their own tax returns.

Employee Insurance and Other Requirements

You may also need to pay insurance for any employees, such as employee compensation insurance or unemployment tax.

Other Taxes and Duties

Depending on your industry, you may be liable for certain other taxes and duties. For example, if you sell gasoline, you may need to pay a tax on any fuel you sell. Likewise, if you import or export goods, you may need to pay certain duties.

Speak to your accountant about any other taxes or duties you may need to withhold or pay.

 

Estimated Taxes

Most corporations must pay estimated taxes throughout the year — on a quarterly basis — depending on the amount of profit and income you expect to make. Per the IRS:

"Corporations must generally make estimated tax payments if they expect their estimated tax (income tax less credits) to be $500 or more."

The most common types of estimated tax are:

Federal income tax

Federal self-employment tax

C Corporation

If you expect to owe $500 or more in income tax, you must make four quarterly estimated tax payments to the IRS. You'll estimate your total tax on Form 1120-W, then pay 25% on each due date. Please note that the IRS will no longer be updating Form 1120-W, so follow up with your accountant with any questions on estimated tax payments after 2023.


Important: This applies to you as the owner of the C Corporation, not the business itself. A C Corporation does not pay income tax.

S Corporation

It's a little less straightforward for an S Corp, which will pay estimated taxes by filing an IRS Form 1120-S, which is the income tax return form for S Corps.

Also, as the owner of an S Corp, you'll need to make estimated payments on self-employment tax.

Learn more on the IRS website, and speak to your accountant for more information. Or use Bizee's Business Tax Filing service.

We can help you navigate complex tax situations and avoid costly mistakes with our complete Business Tax Filing service
Get Help with Corporate Taxes

FAQs on Hawaii Taxes

Is There a Hawaii Sales Tax?

No. Hawaii does have a general excise tax however, which may vary among counties. Depending on how you run your business, you may also need to pay use tax. You can find more information above.

Is There a Hawaii Income Tax?

Yes. The State of Hawaii does have an income tax. You can find more information above.

Is There an HI Franchise Tax?

No, Hawaii does not have a franchise tax.

Do I Need to Pay Estimated Taxes?

Yes. In most cases, you must pay estimated taxes to the federal government, whether you run a C Corp or an S Corp. You'll find more information above.

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