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Act 190 provides income tax relief by lowering the adjusted gross income (AGI) threshold for individuals required to make annual payments for their estimated income taxes; and reduces the percentages used to determine the required annual payment.
Currently, §235-97(f), Hawaii Revised Statutes (HRS), imposes a penalty equal to 2/3% per month on the amount of an underpayment of estimated taxes. For the purposes of this section, taxes withheld at the source (by the taxpayer’s employer) are deemed estimated tax payments. Paragraph (4) of this section conforms to the federal required annual payment amounts in §6654(d), Internal Revenue Code, for individuals with AGIs of $150,000 or less. The required payments for these individuals are equal to the lesser of: 90% of the current year liability or 100% of the prior year liability.
However, current Hawaii law deviates from the federal law for those individuals with AGIs of over $150,000. These individuals must make required annual payments of at least 90% of the current year liability (the same as under federal law), or at least 110% of the prior year liability (federal law contains different rates for 1998 through 2002), in order to escape the underpayment penalty.
Act 190 decreases required withholding amounts by changing the required annual payments for individuals with AGI over $50,000. Act 190 decreases the required annual payment amounts from 90% to 60% of current year liability. It does not change the 110%-of-prior-year-liability threshold. Under Act 190, only those individuals with AGIs of over $50,000 will benefit from the 60% annual payment requirement.
Thus, a perhaps unintended result of Act 190 is that individuals with AGIs of $50,000 or less remain subject to more stringent annual payment requirements than those with higher AGIs. To address this unintended result, the Department will be administering Act 190 to apply to all taxpayers, regardless of their AGI amounts.
Act 190 takes effect on January 1, 2003. The Department will implement amendments in Act 190 to apply to the estimated tax penalty provisions for the 2003 tax year.
Current forms and other tax information are available at the Department’s website at: www.hawaii.gov/tax. On Oahu, forms may be ordered by calling the Department’s Forms Request Line at: 587-7572. Persons who are not calling from Oahu, may call: 1-800-222-7572 (toll-free) to receive forms by mail or by fax.