Hawaii Senate Bill SB2881

Hawaii 2026 Regular Session

• Introduced: 1/23/26
• Refer: 1/30/26
• Report Pass: 3/5/26
• Engrossed: 3/10/26
• Refer: 3/12/26
• Report Pass: 4/9/26
• Report Pass: 5/1/26
• Enrolled: 5/6/26

Caption

RELATING TO STATE INCOME TAX.

Summary

SB2881 amends Hawaii’s income tax law to allow taxpayers to voluntarily elect state income tax withholding from certain taxable distributions reported on IRS Form 1099-R. The bill is aimed at distributions such as individual retirement arrangement payments and tax-deferred annuities, where taxpayers may otherwise face a large tax bill at filing time if no withholding is taken during the year. Under the bill, once a taxpayer gives written notice of the election, the distributing entity must withhold the amount designated by the taxpayer and remit it to the Department of Taxation, so long as the distribution is otherwise taxable under Hawaii law. The bill also requires that any income subject to this withholding still be reported on the taxpayer’s return, with the withheld amount credited against the final tax due and refunded if it exceeds the liability. The Department of Taxation is directed to adopt administrative rules and prescribe forms to implement the new withholding option. The new provision applies to taxable years beginning after December 31, 2026, and the act takes effect upon approval.

Impact

SB2881 creates a new statutory mechanism in Chapter 235, Hawaii Revised Statutes, for voluntary withholding on taxable retirement and similar distributions reported on Form 1099-R. It expands the state’s tax administration tools by authorizing withholding at the source for these payments, while preserving the taxpayer’s obligation to include the income on the annual return and receive credit for amounts withheld. The bill primarily affects taxpayers receiving taxable retirement distributions, annuities, and other 1099-R income, as well as payors and the Department of Taxation, which must establish rules and forms for compliance.

Sentiment

The overall sentiment around the bill appears strongly favorable. The recorded votes were unanimous at each stage shown, including 13-0 in Senate Ways and Means and unanimous conference approvals in both chambers, suggesting broad agreement that the measure is a practical tax administration improvement. The bill’s findings frame it as a taxpayer-friendly measure that reduces underpayment risk and improves collection efficiency, and there is no indication in the provided materials of organized opposition.

Contention

No major substantive controversy is reflected in the available transcripts or voting record. The main implementation issue is administrative: the Department of Taxation must create rules, procedures, and forms, and distributing entities must be able to process taxpayer elections and remit withheld amounts. Any potential concern would likely center on compliance burdens for payors and the mechanics of voluntary election, but the bill’s unanimous support suggests these issues were not significant points of contention in the legislative process.