Updated October 5, 2026. Quick answer: Yes. Hawaii taxes trust income at graduated rates from 1.40% to 8.25%, and the Form N-40 instructions require a return from every trust that has “gross income of $400 or more” subject to taxation under Hawaii Income Tax Law, regardless of the amount of taxable income.
How Hawaii treats trust income
| Item | What the documents say |
|---|---|
| Treatment | Hawaii taxes the income of resident and nonresident trusts and estates through Form N-40, the Fiduciary Income Tax Return. The instructions require a return from a trust with any taxable income for the year, “or having gross income of $400 or more” subject to taxation under Hawaii Income Tax Law. |
| Who counts as a resident trust | Section 235-1 of the Hawaii Revised Statutes defines a resident trust by the residence of the fiduciary or the place of administration, and the definition ends with the words “or the administration of which is carried on in the State”. A nonresident trust is any trust that is not a resident trust. The documents read state no settlor or beneficiary domicile test for resident status. |
| Rate on trust income | Tax is figured from a printed graduated schedule with nine bands, rising from 1.40% to 8.25%. The instructions say: “If the estate or trust had no taxable net capital gains” the schedule applies, and where a trust has both net capital gain and taxable income, Part VI of Schedule D is completed and the tax from line 45 of Schedule D is entered instead. |
| Distribution deduction | Form N-40 carries an income distribution deduction that is computed on Schedule B, and the instructions tell a trust other than a simple trust or pooled income fund to complete that schedule. The form labels the line “Income distribution deduction (From Schedule B, line 17)”. |
| Exemption | A trust that must distribute all of its income currently is allowed a deduction of $200 and all other trusts are allowed $80, while an estate is allowed $400, as a deduction for personal exemption on line 20. |
| Nonresident trusts | A nonresident trust files Form N-40 when it has gross income of $400 or more and a Hawaii resident is a beneficiary or substantial owner, or the trust engages in business through Hawaii rental real property. The instructions describe the qualifying income as income “some part or all of which is from sources within Hawaii”. |
| Return to file | Resident and nonresident trusts file Form N-40, mailed to P.O. Box 1530 in Honolulu with a payment or P.O. Box 3559 without one. The instructions give the deadline as “Returns must be filed on or before the 20th day” of the fourth month following the close of the taxable year, which is April 20 for a calendar year trust, with an automatic six-month extension to file that does not extend the time to pay. |
| Intangible income of resident trusts | For a resident trust, the instructions exclude part of the income earned when nonresident beneficiaries hold the beneficial interest in the trust: “Any intangible income, such as dividends and interest” is excluded to the extent a nonresident beneficiary holds the beneficial interest during the taxable year, except for land trust real property income under Chapter 558. |
A $10,000 example
The tax on $10,000 of taxable income a trust keeps depends on the bracket it lands in. Taxed wholly at the lowest printed rate, 1.40%, the tax is computed as $10,000 x 1.40% = $140; taxed wholly at the highest, 8.25%, it is computed as $10,000 x 8.25% = $825. The state’s own schedule decides which applies. Federal tax on the trust’s income still applies.
Income the trust passes out to a beneficiary is handled as the distribution deduction row above describes.
What changes in 2026
The latest documents read print no 2026 change to how trust income is taxed.
Federal rules
The state’s treatment sits on top of the federal one. The federal brackets a trust faces are laid out in trust tax brackets versus individual brackets, and capital gains that a trust keeps are covered in capital gains stay in the trust. The IRS explains the federal return in the About Form 1041 page.
Related: how Hawaii taxes retirement income, whether Hawaii taxes pensions, what a living trust costs in Hawaii, federal trust tax brackets, and trust income tax by state.
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Answer againSources
- Instructions for Form N-40, Fiduciary Income Tax Return, 2025 (Hawaii Department of Taxation): https://files.hawaii.gov/tax/forms/current/n40ins.pdf
- Hawaii Revised Statutes section 235-1, Definitions (Hawaii State Legislature): https://www.capitol.hawaii.gov/hrscurrent/Vol04_Ch0201-0257/HRS0235/HRS_0235-0001.htm
- Form N-40, Fiduciary Income Tax Return, 2025 (Hawaii Department of Taxation): https://files.hawaii.gov/tax/forms/current/n40_i.pdf
Sources: the primary documents linked above, read on October 5, 2026. General information, not tax advice. Your own facts decide the outcome, and a preparer, the plan administrator or the agency itself is the right place to confirm anything consequential.