I want to can kumquats in honey using a water bath, do I need to add sugar and water to do this?

Can you clarify what the product it is you want to can? Is it a sweetened infusion of kumquats in water? Or do you mean kumquats in a syrup or honey packed into jars? The headline seems to say one thing while the post says "tea," so I am not sure how to advise.

Canning anything in a hot water canner is primarily a matter of acid -- you need a pH of 4.6 or less or else you need a pressure canner. You can get pH strips at a pool store or maybe somewhere like Home Depot.

The issue of headspace can probably be figured out once we know what the material is.

You do not need to add sugar or any other sweetening agent to the canning liquid, but you do need to at least use water to can them in the jars. What you are trying to do is remove the majority of the air inside the jar as well as kill off bacteria that will cause problems. The only other option to water would be juice, or of course a syrup. That can be as light as you wish- less sweetener to more water- but the water is a must. Sugar will also help keep the texture of the fruit, and help prevent it turning into a tasty mush. Since I don't think the texture is a concern of yours, sugar would then be an optional add in which you could eliminate entirely. Both the USDA and The National Center for Home Food Preservation has information about canning citrus fruits, so you can check them for the timing required. If you are new to canning, I highly recommend you do just that. They have other information about canning which you would find very useful.

Marissa McClellan of the Food in Jars blog has a book called Naturally Sweet that takes on preserving with sweeteners other than sugar. You might want to consult her writings before doing this. Canning creates an anaerobic environment which can cause botulism to grow if there is insufficient acid in the product being canned. I can't answer your question but know you need to get good advice about the acidity of kumquats and the use of honey in order to make a safe product. Good luck