STAND. COM. REP. NO. 691

Honolulu, Hawaii

RE: S.B. No. 1470

Honorable Ronald D. Kouchi

President of the Senate

Thirty-Third State Legislature

Regular Session of 2025

State of Hawaii

Sir:

Your Committee on Ways and Means, to which was referred S.B. No. 1470 entitled:

"A BILL FOR AN ACT RELATING TO INCOME TAX WITHHOLDING,"

begs leave to report as follows:

The purpose and intent of this measure is to amend the withholding of income taxes on wages.

More specifically, this measure:

(1) Repeals the maximum tax rate that may be considered in determining the amount of income tax that must be withheld and the requirement that a standard deduction allowance be treated as if it was denominated as a withholding exemption; and

(2) For the purpose of income tax withholding, permits the Director of Taxation to prescribe a standard deduction allowance in an amount more or less than one whole exemption.

Your Committee received testimony in support of this measure from the Department of Taxation.

Your Committee received comments on this measure from the Tax Foundation of Hawaii.

Your Committee finds that the existing cap on the maximum tax rate to be considered in determining income tax withholding does not function for taxpayers in tax brackets with rates higher than eight per cent. Repealing the cap would allow taxpayers to more accurately estimate withholding to reflect their expected liabilities. Your Committee also finds that the requirement that a standard deduction allowance be treated as if it was denominated as a withholding exemption complicates the Department of Taxation's issuance of withholding tables in light of future changes to the standard deduction and income tax brackets under Act 46, Session Laws of Hawaii 2024. Untying the standard deduction allowance from the value of the withholding exemption would allow the Department to more effectively assist employers in their estimation of employees' withholding liabilities in the Employer's Tax Guide. Your Committee further finds that permitting the Director of Taxation to prescribe a standard deduction allowance in an amount more or less than one whole exemption would allow for more precise estimation of employees' income tax liabilities.

As affirmed by the record of votes of the members of your Committee on Ways and Means that is attached to this report, your Committee is in accord with the intent and purpose of S.B. No. 1470 and recommends that it pass Second Reading and be placed on the calendar for Third Reading.

Respectfully submitted on behalf of the members of the Committee on Ways and Means,

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DONOVAN M. DELA CRUZ, Chair