WeVote
Log In

Bill

Bill

GM 1218

Informing the Legislature that on June 8, 2026, the Governor signed the following bill into law: SB2881 SD1 HD1 CD1 (ACT 118).

2026 Regular Session

Allows Hawaii residents to voluntarily withhold state tax from 1099-R distributions (IRAs/annuities), easing underpayment risk and boosting revenue predictability.

Received.
#act118
0
WeVote Research Nonpartisan
Bill Summary · GM 1218

Summary of Bill: SB 2881 (CD1) — Hawaii, 2026

What the bill does (main purpose)

  • SB 2881, CD1, Act 118 (signed June 8, 2026) adds a framework for voluntary state income tax withholding from distributions that are reported on Internal Revenue Service Form 1099-R.
  • The goal is to improve tax administration, reduce the risk of underpayment by taxpayers, and enhance timely and predictable state revenue collection, particularly for distributions such as those from individual retirement arrangements (IRAs) and tax-deferred annuities.

Key provisions and changes

  • New authority for voluntary withholding:
    • Taxpayers may elect to have state income tax withheld from taxable income that would be reported on Form 1099-R.
    • Withholding is based on the applicable rate under Hawaii’s tax code and is initiated by the taxpayer’s election.
  • Responsibilities of distributions entities:
    • An entity making the taxable distribution must withhold the designated amount once it receives written notice of the taxpayer’s election.
    • The withheld amount is remitted to the Hawaii Department of Taxation in the form and manner prescribed by the department.
    • This withholding applies only to distributions that are subject to Hawaii state income tax; if the distributions are not taxable under Hawaii law, the withholding does not apply.
  • Tax treatment and credits:
    • Income from which tax is withheld at the source must be included in the recipient’s tax return.
    • The withheld tax is credited against the recipient’s Hawaii income tax liability for the taxable year.
    • If the withheld amount exceeds the tax due for the year, the excess is refunded according to existing provisions (Section 235-110).
  • Administrative framework:
    • The Director of Taxation is authorized to adopt rules (pursuant to Chapter 91) to implement the new withholding provision.
    • The rules will include the process for taxpayers to elect withholding and prescribe all necessary forms.
  • Effective dates:
    • This Act takes effect upon approval.
    • Section 2 (the withholding provision) applies to taxable years beginning after December 31, 2026.

Who is affected

  • Taxpayers with taxable distributions reportable on IRS Form 1099-R (e.g., distributions from IRAs and tax-deferred annuities) who choose to elect voluntary withholding.
  • Entities making such distributions (e.g., financial institutions, plan administrators) responsible for withholding if notified by the taxpayer and for remittance to the Hawaii Department of Taxation.
  • Hawaii Department of Taxation, which gains an additional withholding mechanism and related administrative rules.

Timeline and process considerations

  • Election timing: Taxpayers must elect withholding in a manner prescribed by the Department of Taxation; the process and forms will be established by rulemaking.
  • Implementation timeline:
    • For tax years beginning after December 31, 2026, the withholding mechanism becomes applicable.
    • The statute directs the Department to issue rules to operationalize withholding, including form design and submission procedures.
  • Immediate effect:
    • The act takes effect upon approval (June 8, 2026), with the withholding mechanism available for future tax years as specified.

Practical impact and considerations

  • Administrative efficiency: By allowing voluntary withholding, the state expects more timely revenue collection and reduced year-end underpayment risk for taxpayers.
  • Taxpayer flexibility: Taxpayers gain a proactive option to manage withholding of taxes on large, recurring distributions, potentially smoothing cash flow and tax payments.
  • Budget and revenue forecasting: More predictable withholding may improve state revenue predictability and reduce reliance on year-end settlements.

If you’d like, I can tailor this summary to specific audiences (e.g., policymakers, tax professionals, or general residents) or add a quick Q&A section addressing common questions about how to elect withholding and how it interacts with Form 1099-R reporting.

Compiled from official sources — confirm details with the bill’s official record.

Sign in to ask a question.