The Hawai’ian islands have faced immense challenges in recent years. The Maui wildfires of 2023 devastated the community, with the University of Hawaiʻi Economic Research Organization (UHERO) reporting survey results that one year later, “the number of households living below the poverty line has more than doubled.” Fostering local economic growth and innovation is more crucial than ever as the people of Hawai’i continue to rebuild and recover. 

In this spirit, we'll explore the state of Hawaii's Tax Credit for Research Activities (i.e., the Hawaiian R&D tax credit). This fully refundable income tax credit directly supports small Hawaiian businesses investing in research and development (R&D).

The credit being refundable means: a Hawaiian company with no tax liability can still receive a cash refund for its qualified research expenses (QREs).

Due to a barrage of bills recently passed by the Hawaiian legislature, decoding how the R&D tax credit will work in 2025 is a bonafide doozy.

We’re here to walk you through everything you need to know to file for tax year 2024.

Key Updates to Hawaii’s R&D Tax Credit

You may have heard that Hawaiian lawmakers voted in 2019 to sunset the Tax Credit For Research Activities, repealing it from statute after December 31, 2024. Fortunately, Governor Joshua Green, MD signed Senate Bill 2497 (S.B. No. 2497) in July 2024. This legislation not only postponed the sunset until after 2029, but also increased the state’s annual, total credit cap from $5 to $10 million!

The Hawaiian R&D tax credit is based on the federal Credit for Increasing Research Activities.

For the tax year 2024, the Hawaiian R&D tax credit equals the amount provided by 26 U.S. Code § 41 – as it was enacted on December 31, 2011 – and as it is modified by Haw. Rev. Stat. § 235-110.91.

Of note:

• Small businesses must also claim the federal R&D tax credit for the same QREs to claim the Hawaiian R&D tax credit.
• Only QREs for research conducted in Hawaii are eligible for the Hawaiian R&D tax credit. 
• Credit for all QREs may be taken without regard to previous years' amount of expenses. 

Hawaiian corporations also must meet the following “high technology” qualification criteria:

• Conduct greater than 50 percent of activities in “qualified research”; 
  • This term shares the same meaning as in 26 U.S. Code § 41, provided that it does not include research expenses incurred outside of the State."
• Be domiciled and registered to conduct business in the state;
• Be independently owned and operated; and
• Employ fewer than 500 full-time or part-time employees in the state, including affiliates.

Deadlines and the Application Process

The state of Hawaii’s Department of Business, Economic Development, and Tourism (DBEDT) administers the Tax Credit for Research Activities via Form N-346A. Form N-346 and the corresponding instructions were most recently revised in 2021.

At the time of writing, the DBEDT has not yet disclosed the filing process for 2025. The following unconfirmed timeline for 2025 is extrapolated by the author from the filing process for 2024. 

NOW: Hawaii businesses need to create an eHawaii.gov account to file electronically via the DBEDT’s online application portal, which is not yet live. It is unknown at this time whether the online application fee will be waived in 2025.

March 3, 2025, 9 a.m. Hawaii Time: All taxpayers should submit their completed, signed Forms N-346 via the DBEDT’s online portal for the year ending on December 31, 2024.

• It is imperative to prepare early and submit immediately when the online portal opens: the DBEDT evaluates applications on a first-come, first-served basis. The DBEDT notes that in the past, “the $5 million cap was reached almost as soon as the online applications were opened.”

Shortly after submission: A second form will be sent to the applicant electronically. This information must also be completed and submitted before the entire R&D credit application can be reviewed.

March 31, 2025, 11:59 p.m. Hawaii Time: Applications will close for the year ending on December 31, 2024.

Acena Consulting is passionate about helping Hawaii’s resilient small businesses receive the tax refunds they earned through their hard work and innovation. We will ensure accelerated, accurate, and on-time completion of your tax forms and documentation.

Please schedule a free consultation today. 

Help Hawai’i Now

Acena Consulting’s Erica Valdescaro has deep connections to the people of Hawai’i. She earned her Bachelor’s degrees at the University of Hawaiʻi at Mānoa, and after graduation, she worked in the state’s vibrant nonprofit space to secure educational opportunities for the young children of homeless and at-risk families.

If you want to learn more or donate to ongoing recovery efforts, here are her recommendations:

• Hawaiʻi Foodbank, the leading hunger relief organization in Hawai’i, provides millions of pounds of food annually to those in need across the islands.
• The Women's Fund of Hawaii empowers women and girls by supporting grassroots organizations and programs that address critical needs like education, economic security, and health and safety.
• The Hawai'i Community Foundation’s Maui Strong Fund provides essential financial resources to support the recovery of the people and places affected by the Maui wildfires.

Last Stop, Utah!

• Questions? Please email me at laura.whittenburg@acenaconsulting.com. 

• Subscribe to our newsletter as our R&D state tour concludes next week in Utah.

• Sign up for our free, interactive webinar on November 19: “Cracking the (Tax) Code for R&D.”

  • This workshop provides one CPE credit for professionals keeping up with continuing education.

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Special thanks to Erica Valdescaro, Human Resources Manager at Acena Consulting.

Edited by Randy Eickhoff, CPA, Founder & Head Coach at Acena Consulting. Photo courtesy of thedaintyheart on Flickr.