Hawaii's approach to taxing the wages of resident and nonresident remote employees is characterized as conventional, with specific obligations and regulations for employers.
Employer Withholding Obligations
Employers in Hawaii are required to withhold taxes from the wages of both resident and nonresident employees based on the applicable withholding tax rates. Specifically, under HRS §235-66, employers must withhold taxes from wages paid to employees, following sections 235-61 to 235-64 regarding the Tax Withholding Requirement. For example, every employer making payments must remit withheld taxes to the Department of Taxation within the specified timelines.
Sourcing of Nonresident's Wages
For nonresidents, taxable income is sourced from income received or derived from property, personal services performed, or trade and business conducted within Hawaii. This means that any wages earned for work performed while physically located in Hawaii may be subject to state income tax obligations.
Reciprocity Agreements
Hawaii does not have reciprocity agreements with any states, meaning that nonresident employees are subject to Hawaii state income tax on income earned from services performed within the state, regardless of their state of residence.
De-minimis Thresholds
Hawaii has no established day or dollar thresholds (de-minimis rules) that exempt nonresidents from tax obligations based on the amount of income earned or the number of days worked in the state. All nonresidents earning income from sources within Hawaii are generally subject to tax.
Local/City Wage Taxes
At present, there are no local or city wage taxes imposed in Hawaii. The state operates under a centralized tax system, meaning that all income tax obligations are handled at the state level without additional local taxation.
In summary, Hawaii employs direct and clear tax obligations for both resident and nonresident remote employees, with specific requirements for employer withholding, a lack of reciprocity agreements, no de-minimis thresholds, and no local tax additional to state income tax.