Hawaii Research Activities Tax Credit
Hawaii Department of Taxation
20% of Hawaii QRE (refundable)
Fully refundable 20% Hawaii R&D credit
Hawaii provides a refundable income tax credit equal to 20% of qualified research expenses (QRE) for in-state research — one of the most generous and most accessible state R&D credits in the country. Because the credit is fully refundable, Hawaii-based companies with little or no income tax liability receive the full credit as a cash refund. The credit tracks the federal IRC §41 definition of QRE but requires research to be physically conducted in Hawaii.
- Funding type
- Tax Credit
- Level
- State
- Amount
- 20% of qualified research expenses (QRE) physically conducted in Hawaii. The credit is fully refundable — the full amount is paid as a cash refund if it exceeds Hawaii income tax liability. No incremental base calculation required; the credit applies to total (volume-based) Hawaii QRE.
- Realistic amount
- A 10-person Honolulu biotech company with $500,000 of Hawaii-located QRE (wages + supplies) generates a $100,000 credit…
- Deadline
- Rolling — claimed annually on Hawaii income tax return
- Status
- active
- States
- HI
- Payment model
- tax offset
Who qualifies
- Must conduct qualified research activities physically located within Hawaii — follows federal IRC §41 four-part test but requires Hawaii-located activity
- Qualified research expenses include: wages of Hawaii-based employees performing, supervising, or supporting research; supplies consumed in Hawaii research; 65% of contract research payments for Hawaii-located work
- All entity types eligible: C-corporations, S-corporations, LLCs, partnerships, sole proprietors — must file a Hawaii income tax return
- No minimum revenue, employee count, or project size thresholds
- The credit is fully refundable — excess credit over Hawaii income tax liability is paid as a cash refund; no carryforward election required
- Must use Form N-346 to calculate and claim the credit
- Research must satisfy all four prongs of the §41 test: technological in nature, for developing or improving a business component, subject to uncertainty, and conducted through a process of experimentation
What it covers
Eligible expenses
- Wages of Hawaii-based employees directly performing qualified research activities
- Wages of Hawaii-based employees directly supervising or directly supporting qualified research
- Supplies and materials consumed or destroyed in Hawaii-located qualified research
- 65% of payments to contractors for qualified research conducted in Hawaii
- Computer rental costs for Hawaii-located qualified research
Ineligible expenses
- Research conducted outside Hawaii (by any employee, regardless of Hawaii residency)
- Research funded or reimbursed by a third party such as a government contract or client
- Social sciences, arts, humanities, cosmetic design changes
- Market research and consumer surveys
- Research after commercial production begins
- Routine quality assurance testing and data collection not involving technological uncertainty
- Management and administrative time not directly tied to qualified research
How to apply
-
1
Identify Hawaii-located qualified research expenses
Calculate your total QRE using federal IRC §41 definitions but limit to research physically conducted in Hawaii. Wages for employees working remotely from the mainland, out-of-state supply costs, and mainland contractor payments do not qualify. Build a location-by-project allocation supporting your Hawaii-specific QRE amount.
~6 hrs
-
2
Apply the 20% volume credit rate
Unlike the federal §41 credit and many state credits, Hawaii does NOT require an incremental base calculation. The 20% credit applies to total (volume-based) Hawaii QRE for the taxable year. Multiply your Hawaii-located QRE by 20% to get your credit amount.
~1 hrs
-
3
Complete Hawaii Form N-346
File Form N-346 (Tax Credit for Research Activities) to claim the credit. The form captures Hawaii-located QRE and computes the 20% credit. Attach to your Hawaii income tax return — Form N-11 (individuals), Form N-30 (C-corporations), Form N-35 (S-corporations), or Form N-20 (partnerships).
~3 hrs
-
4
File Hawaii income tax return and receive refund
Submit your Hawaii income tax return with Form N-346 attached by April 20 (or applicable extension). The credit first offsets any Hawaii income tax liability; any excess is refunded to the taxpayer. The Hawaii Department of Taxation typically issues refunds within 8-12 weeks of filing for electronic returns.
~2 hrs
-
5
Maintain supporting documentation
Keep records supporting your Hawaii-located QRE for at least 3 years (Hawaii's standard audit lookback period). Documentation should include: employee timesheets showing Hawaii work location by project, supply invoices showing Hawaii delivery or consumption, contract research agreements with Hawaii-located scope.
~4 hrs
Hawaii's credit is volume-based (no base calculation) AND fully refundable — a rare combination. Most state R&D credits are either incremental or non-refundable. Hawaii startups and small companies receive actual cash even in pre-profit years.
Deadline & timing
Claimed on Form N-346 (Tax Credit for Research Activities) filed with the Hawaii income tax return. Hawaii individual and corporate income tax returns are generally due April 20 (not April 15 — Hawaii has a different due date). Extensions are available. Because the credit is refundable, there is no strategic timing incentive to defer.
Programs that stack well
Related programs
Last reviewed 2026. GrantCompass is an independent funding-discovery tool and is not affiliated with any government agency. Always confirm details on the official program page.