Understanding the Hawaii Penalty Waiver Request Process for Tax Relief

Introduction to Tax Debt and Relief Options

Tax penalties in Hawaii can significantly raise the taxes you owe, especially when you have to pay interest every month. If you missed a filing deadline, didn't pay all of your taxes, or had problems with Hawaii Tax Online, penalties can quickly add up and make it harder to pay your taxes.

Many taxpayers can get penalty relief, but they don't know it. Hawaii's Department of Taxation lets people and businesses ask for penalty abatement if they have a good reason, have followed the rules, or are in a very unusual situation. Knowing about these choices could save you hundreds or even thousands of dollars.

This guide covers Hawaii's most common penalties, who can get help, how to apply, and what to do if your claim is denied. It also explains alternative options like the offer-in-compromise program and how to manage back taxes effectively using payment plans or formal appeals.

Understanding Hawaii Tax Penalties

The Hawaii Department of Taxation imposes penalties to encourage people to file and pay their taxes on time. These penalties apply to both individuals and businesses. Understanding which penalties you may face is the first step toward securing penalty relief and avoiding further financial consequences.

Common Types of Penalties

Hawaii enforces several types of penalties, each tied to different forms of noncompliance. The following are the most common:

• Failure to File Penalty

This penalty applies when taxpayers do not file their tax return by the required due date. It is typically calculated as 5% of the unpaid tax shown on the return for each month it is late, up to a maximum of 25%.

• Failure to Pay Penalty

Taxpayers who file on time but fail to pay their full tax liability may incur a failure to pay penalty. This charge accumulates until the tax is paid in full, increasing the total amount owed.

• Estimated Tax Penalty

Individuals and businesses required to make quarterly estimated payments but fail to do so may face this penalty. The penalty kicks in when taxpayers fail to make the required percentage of tax payments throughout the year.

• Electronic Filing Penalty

Certain taxpayers must electronically file their returns. If a person or business that is required to file electronically submits a paper return instead, the state may impose a penalty of 2% of the tax amount due.

• Electronic Payment Penalty

Similar to the e-filing requirement, Hawaii mandates that some payments be made electronically. If these payments are submitted by mail or another manual method, a 2% penalty may be assessed.

These penalties apply to various taxes, including general excise, income, and withholding taxes. Understanding the reason for the penalty can help determine whether a taxpayer is eligible for penalty abatement.

Interest Charges on Penalties

The Hawaii Department of Taxation charges interest on unpaid taxes and penalties. Interest starts to build up the day after the due date and is charged at 2/3 of 1% per month, or part of a month, until the balance is paid off. Taxpayers who put off paying their taxes or don't set up a payment plan may see their tax debt grow significantly over time because interest compounds.

Even if the penalty is removed, interest is usually not waived. However, a reduction in a penalty may also result in a reduction in its interest. This means that taking action quickly is essential to prevent penalties and interest from piling up on unpaid taxes.

Anyone who wants penalty relief needs to know what kinds of penalties there are and how interest works. The next part will help you figure out if you can get your penalties reduced and what to do if you think you can.

Who Qualifies for Penalty Abatement in Hawaii? 

Many taxpayers are surprised to learn that they may qualify for penalty abatement even if they still owe taxes or are on a payment plan. The Hawaii Department of Taxation provides relief when taxpayers demonstrate good faith, reasonable compliance history, or valid justification for late payments or filing. This section outlines the general criteria used to determine eligibility.

General Eligibility Guidelines

To be eligible for penalty relief, taxpayers must show that they didn't file or pay their taxes for a good reason, not because they were careless. Reasonable cause refers to an event or circumstance beyond a person's control that prevented them from paying taxes. The Department looks at each request separately to see if the taxpayer tried to follow the law.

Additional eligibility criteria often include:

• The taxpayer has filed all required tax returns, even if a balance remains.
• The taxpayer has made arrangements to resolve any remaining tax liability, such as an installment agreement or lump sum payment plan.
• The taxpayer does not have a recent history of noncompliance or repeated penalties.

The type of penalty being assessed also affects eligibility. Some penalties, like those tied to electronic filing, are procedural and may be easier to resolve. Others, like failure to file or pay, may require more vigorous justification and documentation.

First-Time Penalty Abatement

Although Hawaii does not have a formal First Time Abate program like the IRS, the Department of Taxation may grant relief to taxpayers with a clean record. This informal form of first-time forgiveness can be applied if the taxpayer meets the following general conditions:

• They have filed and paid all required taxes in the past three years with no prior penalties.
• They are current on all filing requirements at the time of the request.
• They have made good-faith efforts to address any outstanding balances.

This type of relief benefits businesses or individuals who made an isolated error, such as missing a due date or misunderstanding filing procedures. While not guaranteed, first-time abatement demonstrates the Department’s willingness to work with compliant taxpayers who make occasional mistakes.

Understanding your eligibility is the first step in pursuing penalty relief. If you believe you meet the criteria, the following section explains how reasonable cause works and which situations may qualify under this standard.

Reasonable Cause Relief: Most Common Path to Relief 

Most taxpayers in Hawaii who want to avoid a penalty use reasonable cause. Reasonable cause applies when things outside of a person's control stop them from paying their taxes. The Hawaii Department of Taxation looks at each claim separately to see if the taxpayer acted with ordinary business care and caution and could or would pay on time.

Taxpayers must give a full explanation and proof of their situation to get a reasonable cause request approved.

Accepted Reasons for Relief

Below are several situations that may qualify as reasonable causes for penalty relief in Hawaii:

• Natural Disasters and Emergencies: 

Events like wildfires, hurricanes, floods, or other disasters can significantly impact taxpayers' ability to file or pay taxes. For example, the 2023 Maui wildfires led to temporary tax relief programs, illustrating how the Department accommodates exceptional circumstances.

• Serious Illness or Death in the Family

Suppose the taxpayer or a close family member suffered from a serious medical condition, was hospitalized, or passed away around the filing deadline. In that case, the Department may accept this as reasonable cause.

• Inability to Obtain Necessary Records

A taxpayer unable to access financial documents or essential data due to theft, system failure, or a third-party issue (such as a tax preparer withholding records) may qualify for relief.

• Reliance on Competent Professional Advice

Suppose a tax professional provided incorrect or incomplete guidance, and the taxpayer relied on that advice in good faith. In that case, the Department may waive specific penalties—provided the professional was qualified and the taxpayer disclosed all relevant facts.

• Systemic Errors or Failures

Disruptions such as Hawaii Tax Online outages, postal delays, or bank processing errors may serve as valid grounds for abatement when they directly impacted the taxpayer’s ability to comply.

These examples show that the Department prioritizes fairness when circumstances are beyond the taxpayer’s control. However, relief is not automatic and must be backed by credible proof.

Reasons That Do Not Qualify

The Hawaii Department of Taxation routinely rejects specific explanations, even though reasonable cause encompasses many unforeseen events. These include:

• Ignorance of Tax Laws

A lack of knowledge about filing requirements or deadlines is not considered reasonable.

• Procrastination or Forgetfulness

Simply failing to manage time or missing deadlines without a valid cause does not qualify.

• Lack of Funds Alone

Inability to pay due to financial hardship, without a qualifying cause or effort to resolve the tax debt, is insufficient. However, financial difficulty paired with exceptional circumstances may still be reviewed under the state’s practical tax administration standards.

By understanding what qualifies as reasonable cause—and what does not—taxpayers can better prepare their request and gather the documentation needed for a successful abatement. The following section explains how to organize and present that documentation effectively.

Required Documentation for Your Abatement Request 

Suppose you don't include the proper paperwork with your penalty abatement request; your chances of getting it approved decrease significantly. The Hawaii Department of Taxation needs clear, reliable proof that your situation meets the requirements for reasonable cause or falls under another relief provision. No matter how you file your taxes—by mail, online, or by phone—you should always send in supporting documents.

What to Include

The following documents can help demonstrate that your circumstances warrant penalty relief:

• Medical Records and Doctors’ Letters

If you or a close family member experienced a serious illness or medical emergency, provide hospital records, physician statements, or treatment timelines that confirm the duration and impact.

• Death Certificates

When a family member's death contributed to the late filing or payment, include a copy of the death certificate and documentation showing your relationship to the deceased.

• Professional Correspondence

If you relied on a tax professional, include emails, letters, or signed statements showing that you sought and received advice—especially if the guidance led to a filing or payment error.

• System Error Documentation

Include screenshots, system logs, or official notices if your ability to file, submit, or pay was affected by online system outages, software failures, or disruptions through Hawaii Tax Online.

• Insurance Claims and Disaster Records

In cases involving natural disasters, submit FEMA notices, insurance claim summaries, or official evacuation orders.

• Financial Condition Statements

For those experiencing economic hardship, financial documentation such as an income and assets overview, bank statements, or a statement of financial condition (such as Form CM-2) can support your claim.

Tips for Strong Documentation

To improve the strength of your submission:

• Ensure all documents are dated and linked to the tax period when the penalty occurred.
• Organize materials in the order referenced in your explanation.
• Label documents clearly (e.g., “Hospital Discharge Summary – March 2024”).
• Only submit copies—not originals—when sending documents by mail.
• Retain a full copy of everything you send in case of follow-up or appeal.
  
  

Well-organized documentation increases your credibility and helps the Hawaii Department of Taxation evaluate your abatement request more efficiently. In the next section, you'll learn exactly how to submit your request and the best way to contact the Department based on your situation.

How to Request Penalty Abatement in Hawaii

Filing a penalty abatement request with the Hawaii Department of Taxation requires attention to detail, proper documentation, and a clear explanation of the circumstances that prevented timely compliance. Whether you’re an individual, corporation, or small business, following the correct process improves your chance of receiving relief. This section outlines the steps to submit a complete and practical request.

Step-by-Step Process

1. Review Your Penalty Notice

Carefully examine the notice issued by the Hawaii Department of Taxation. Confirm the tax period, type of penalty (e.g., late filing, failure to pay, electronic filing), and the amount owed. Ensure the penalty was applied in error, or you have a valid basis for abatement.

2. Determine Your Relief Strategy

Identify whether your situation fits under:

• First-time abatement based on a clean compliance history
• Reasonable causes that are due to events beyond your control
• Administrative or procedural errors by the Department

Each strategy may require different documentation and explanations.

3. Gather Your Supporting Documentation

Collect all evidence described in the previous section. Ensure your documents tie the qualifying event (e.g., illness, disaster, reliance on a tax advisor) to the tax liability or payment failure.

4. Choose Your Submission Method
   
   
   • Online via Hawaii Tax Online

Log in to your account at https://hitax.hawaii.gov and send a secure message with your penalty relief request, attaching any supporting documents. This is often the fastest option.

• By Mail

Send a written letter to the Hawaii Department of Taxation. Clearly state the reason for your request, including a timeline, penalty details, supporting documentation, and contact information.

• By Phone

Call the Department at 808-587-4242 (or 1-800-222-3229 toll-free) to ask about penalty relief or set up a follow-up by mail or online. Be ready to reference your notice number and tax type.

5. Submit a Clear and Concise Explanation
   
   Your letter or online message should include the following information:
   
   • A description of what happened and why you were unable to file or pay taxes on time
   • The exceptional circumstances or reasonable cause involved
   • The specific penalties you are requesting to have waived
   • Your taxpayer identification number and contact information
     
     
6. Track and Follow Up

Keep records of everything you submit, including your statement, attachments, and submission dates. If you don’t receive a response within 30–45 days, follow up using the same method you used to file the request. The Department may reach out for clarification or request additional documents.

Whether you’re requesting relief for back taxes, general excise tax, or income tax penalties, following these steps ensures your request is complete and professional. The following section explains what to do if your request is denied and how to initiate an appeal.

What to Do If Your Request Is Denied

The Hawaii Department of Taxation may still deny your request for a penalty abatement, even if you have all the paperwork in order. Just because someone says no doesn't mean you have to give up. You can appeal, give new evidence, or explain your case if you think the Hawaii Department of Taxation wrongly rejected your request. You won't miss the chance to get the help you need if you know how the appeal process works.

Common Reasons for Denial

Your abatement request may be denied for several reasons, including:

• Missing or incomplete documentation to support your claim
• The explanation didn’t meet the standards of reasonable cause
• The taxpayer did not meet basic eligibility requirements, such as having filed all required tax returns
• The Department did not find the circumstances compelling under its rules
• The penalty was applied correctly, and no statutory exception applies

If your penalty relief was denied due to a lack of evidence, you may still succeed on appeal by submitting stronger documentation or clarifying the situation.

How to File an Appeal

To challenge a denial:

1. Review the Denial Letter

The Department will issue a written notice explaining the denial and informing you of your right to appeal. Carefully note the reason for denial and any appeal deadline.

2. Gather Additional Documentation

Strengthen your appeal with new or updated records—such as doctors' reports, financial condition statements, or correspondence with a tax professional.

3. Write Your Appeal

Submit a clear, concise letter restating your case and addressing the reason for the initial denial. Be specific about why you believe the Department’s decision was incorrect.

4. Submit the Appeal Promptly

Appeals are typically due within 30 days from the date of the denial notice. Send your appeal by mail or via Hawaii Tax Online, and keep a copy for your records.

If your appeal is successful, the Department may waive some or all penalties. If not, explore other tax relief options, such as a compromise based on your inability to pay.

In the next section, you'll learn about Hawaii’s Offer in Compromise program, which allows qualifying taxpayers to settle their tax liability for less than the full amount owed.

Offer in Compromise: An Alternative Relief Option

Hawaii's Offer in Compromise (OIC) program might let you pay less than the full tax bill amount, including penalties and interest. This choice isn't the same as penalty abatement, but it does give taxpayers who have long-term money problems or don't agree with the amount assessed a lot of tax relief.

An offer in compromise is beneficial when a taxpayer can't pay their basic living costs or run their business, even with monthly payments or an installment agreement.

When to Consider an Offer in Compromise

Hawaii’s Department of Taxation may accept an offer if one or more of the following apply:

• Doubt as to Liability

You believe the assessed taxes, penalties, or interest were miscalculated, or you do not owe the full amount.

• Doubt as to Collectibility

You owe the debt, but your assets, income, and overall financial condition show that the state is unlikely to collect the full amount through normal means.

• Effective Tax Administration

Even if the debt is correct and theoretically collectible, paying it in full would create significant economic hardship or would be unfair based on your specific circumstances.

In any of these cases, an offer may be appropriate—especially if you've already been denied penalty abatement or can't sustain long-term monthly payments.

Required Forms and Documentation

To submit an Offer in Compromise to the Hawaii Department of Taxation, you must complete and submit the following:

• Form CM-1: Offer in Compromise application
• Form CM-2 (individual) or Form CM-2B (corporation): Statement of Financial Condition
• Copies of your recent tax returns
• Documentation of income, assets, liabilities, and expenses
  A minimum initial lump sum offer (typically 20% of the total offer amount)

Incomplete or inaccurate forms will delay or result in the denial of the offer.

Suspension of Collection Actions

Once your offer is received, the Department may temporarily pause collection actions, such as wage garnishments or bank levies. This suspension offers short-term relief while your request is under review. However, interest continues to accrue during this period.

For taxpayers facing ongoing financial distress, an Offer in Compromise may provide a viable path toward settling back taxes and avoiding continued financial pressure.

Final Checklist Before You Submit

Reviewing all documents and details before you officially submit your penalty abatement request or offer in compromise is essential to avoid unnecessary delays or denials. A complete and accurate submission improves your chances of receiving relief from the Hawaii Department of Taxation and minimizes the need for follow-up communication.

Use the checklist below to ensure your request is ready:

Documentation Checklist

• A copy of your penalty notice showing the tax period, penalty type, and amount owed is provided to the Department as the official record of the issue you're addressing in your request.
  
  
• Proof supporting your reasonable cause or exceptional circumstances (e.g., medical records, death certificate, disaster declaration)
  
  
• If you relied on a tax professional, provide professional correspondence. This may include emails, letters, or engagement summaries showing that you sought qualified advice and disclosed the necessary information.
  
  
• Keep track of your income, assets, and expenses (for compromise offers) in your financial records. This will support your claim that full payment would cause undue economic hardship.
  
  
• Ensure you have completed Form CM-1, CM-2, or CM-2B (if applicable) to provide a detailed overview of your financial situation.

Request Preparation Checklist

• Provide a clear and detailed explanation of the event or issue that prevented you from meeting your tax obligations, such as a medical emergency, natural disaster, or professional error.
  
  
• Include a timeline that directly connects the circumstances (such as late filing, payment failure, or a system error) to the penalty assessed by the Hawaii Department of Taxation.
  
  
• Clearly state the type of relief you are requesting—whether it's complete penalty abatement, a penalty reduction, or a settlement through an offer in compromise.
  
  
• Make sure your contact information is current and complete so the Department can reach you with questions, updates, or a final decision on your request.

Submission Checklist

• Ensure all documents are organized, labeled, and referenced clearly so the Department can easily match them to your explanation and timeline.
  
  
• Keep a full copy of your submission, including forms, supporting documentation, and your written explanation, for your records and future reference.
  
  
• Choose your preferred submission method—either through Hawaii Tax Online, by mail, or by phone inquiry—and follow that method’s instructions carefully.
  
  
• Set a calendar reminder to follow up on your request within 30 to 45 days of submission to check the status and respond to any additional information requests.
  
  

Submitting a complete and well-documented claim increases your credibility and reduces the risk of rejection. If everything is in order, you’re ready to move forward confidently.

Frequently Asked Questions (FAQs) 

Can I request penalty abatement before I pay my taxes?

Yes, you can request penalty abatement even if you haven’t fully paid your tax liability. However, penalties and interest may continue to accrue while your request is under review. Setting up a payment plan or installment agreement to reduce future charges and demonstrate good faith to the Hawaii Department of Taxation while your claim is being processed is a good idea.

Does Hawaii automatically reduce penalties if I set up a payment plan?

No. Establishing a payment plan or installment agreement does not automatically relieve penalties. You must submit a separate request for penalty abatement, providing documentation that proves reasonable cause or qualifies under first-time relief. The Hawaii Department evaluates these requests individually. Even if you make monthly payments, penalties will remain unless formally waived or reduced through the approved process.

How long does it take to hear back from the Department of Taxation?

Response times for penalty abatement requests vary, but most taxpayers receive a reply within 30 to 60 days. Complex cases or those missing key documents may take longer. If you submit through Hawaii Tax Online, communication may be faster. Remember to retain proof of submission and set a reminder to follow up if you haven’t received a response within 45 days.

Can I apply for penalty abatement more than once?

Yes, you can apply for penalty abatement multiple times when dealing with different tax periods, penalty types, or new circumstances. However, repeat requests are reviewed more closely, especially if your compliance has not improved. To strengthen your chances, submit updated documentation, explain any new events, and demonstrate continued efforts to resolve your tax obligations and maintain timely filing and payments.

Will requesting an abatement stop interest from accruing?

No, interest on unpaid taxes continues to accrue until your full tax liability is resolved, even while your penalty abatement request is under review. However, if the penalty is removed, related interest charges may also be reduced or waived. The best way to stop additional interest is to pay the tax in full or settle through a lump sum offer or accepted compromise.

What’s the difference between an offer in compromise and penalty abatement?

Penalty abatement removes or reduces fees for late filing, nonpayment, or procedural issues but does not lower the original tax debt. An offer in compromise, by contrast, allows eligible taxpayers to settle the entire liability—including penalties and interest—for less than the full amount owed. Both require formal applications and supporting documents, but the offer in compromise is reserved for severe financial hardship or doubt about collection.