Shown verbatim: the complete text as captured from the official page posted by the Hawaii State Legislature, fetched 2026-08-29. Where this bill amends existing law, language marked for deletion in the official page appears here in brackets. This is the first conference draft. The official bill page.
THE SENATE S.B. NO. 2881 THIRTY-THIRD LEGISLATURE, 2026 S.D. 1 STATE OF HAWAII H.D. 1 C.D. 1 A BILL FOR AN ACT RELATING TO STATE INCOME TAX. BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII: SECTION 1. The legislature finds that existing law does not address the withholding of state income tax from distributions subject to reporting on Internal Revenue Service Form 1099-R. The lack of clear withholding guidelines in statute limits the department of taxation's ability to collect state income taxes efficiently and may result in taxpayers owing large sums at the end of the year, creating unnecessary compliance burdens. The legislature further finds that allowing voluntary withholding of taxable distributions subject to reporting on Internal Revenue Service Form 1099-R, including individual retirement arrangements and tax-deferred annuities, would improve tax administration, reduce taxpayer risk of underpayment, and enhance the State's ability to collect revenue in a timely and predictable manner. Accordingly, the purpose of this Act is to provide for voluntary withholding of state income tax from taxable income subject to reporting as a distribution on Internal Revenue Service Form 1099-R. SECTION 2. Chapter 235, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows: "§235- Voluntary withholding of tax for distributions reported on Form 1099-R. (a) A taxpayer may elect to have any taxable income received by the taxpayer that is subject to reporting as a distribution on Internal Revenue Service Form 1099-R be subject to withholding under this chapter at an applicable rate pursuant to this chapter. An entity making a distribution, upon receiving written notice from a taxpayer of an election under this section, shall deduct and withhold the amount designated by the taxpayer and remit the amount withheld to the department of taxation in the form and manner prescribed by the department; provided that this section shall not apply to an entity if the distributions are not subject to tax under this chapter. (b) Income upon which any tax has been withheld at the source pursuant to this section shall be included in the return of the recipient of the income, but any amount of tax withheld shall be credited against the amount of income tax as computed in the return, and if in excess of the tax due for the taxable year shall be refunded as provided in section 235-110. (c) The director of taxation shall adopt rules pursuant to chapter 91 necessary to implement this section, including the procedure for a taxpayer to elect withholding pursuant to subsection (a), and prescribe all necessary forms." SECTION 3. New statutory material is underscored. SECTION 4. This Act shall take effect upon its approval; provided that section 2 shall apply to taxable years beginning after December 31, 2026.
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