If you run a partnership in Hawai‘i whether general, limited, or LLP the 2025 tax year (filed in 2026) brings important changes. Hawai‘i has aligned parts of its tax code with federal law while also introducing unique state rules, especially around the Pass-Through Entity (PTE) Tax Election. These changes can affect allocations, partner returns, and cash flow. Here are the top 5 things partnerships should know.
Top 5 Hawai‘i Tax Changes Partnerships Should Know for 2025
1. Pass-Through Entity (PTE) Election Expanded & Clarified
- Hawai‘i law (Act 50, SLH 2024; Act 58, SLH 2025) allows eligible partnerships to elect to pay income tax at the entity level. (hawaii.gov)
- The PTE tax is set at 9% of Hawai‘i taxable income.
- For many partnerships, this creates potential state tax savings by allowing members to claim a credit for their share of taxes paid by the entity.
2. “Add-Back” Requirement for Partners Claiming the PTE Credit
- Under Act 58 (effective for tax years beginning after Dec 31, 2024), any partner who claims a credit for their share of the PTE tax must add back that amount to their taxable income on their Hawaii return. (hawaii.gov)
- This prevents “double dipping,” but makes tracking much more complex. Partnerships will need to report partner-level allocations accurately.
3. Credit Carry-Forward for Excess PTE Payments
- If the credit for PTE taxes paid exceeds a partner’s liability, the unused portion is nonrefundable but can be carried forward to future years. (hawaii.gov)
- Partnerships should flag this for partners, especially those with uneven income year to year.
4. Standard Deduction & Bracket Adjustments for Partners
- Hawai‘i has increased the standard deduction and adjusted individual tax brackets beginning in 2025 (Act 46, SLH 2024). (hawaii.gov)
- Since partnership income flows through to partners, each partner’s ultimate state liability may decrease depending on their filing status and income level.
5. New Filing & Compliance Rules for Partnerships
- Temporary administrative rules issued January 2, 2025 clarify how partnerships elect PTE status, file returns, and remit taxes. (hawaii.gov)
- Partnerships must file electronically and make estimated payments on time to maintain compliance.
- Early adoption of clear procedures for elections, allocations, and reporting will minimize disputes among partners.
What Partnerships Should Do Now
- Evaluate PTE Election: Run the numbers to see if electing PTE status makes sense for your partnership and its members.
- Update Agreements: Amend partnership agreements to address allocations, credits, and the add-back requirement.
- Improve Recordkeeping: Ensure your accounting system tracks PTE payments, partner allocations, and credit carry-forwards.
- Communicate With Partners: Each partner’s tax outcome will differ. Educating them early avoids surprises.
- Consult a CPA: Hawai‘i’s PTE rules are new and evolving; professional guidance is essential.
Conclusion
For Hawai‘i partnerships, 2025 brings both opportunities (via PTE elections and higher standard deductions) and challenges (like add-back compliance and credit tracking). Partnerships that proactively model these changes and communicate clearly with partners will be best positioned to reduce state tax burdens while staying compliant.
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