Hawaii Payroll Tax Penalties & Interest Checklist

• Employers must remit payments semi-weekly when their annual withholding liability

exceeds $40,000.

• Employers with annual withholding liability between $5,000 and $40,000 must remit

payments monthly.

• Employers whose annual withholding liability is $5,000 or less must remit payments

quarterly.

The state adds penalties when payments arrive late or incomplete to encourage timely compliance and recover collection costs. Penalty calculations follow specific structures based

on violation type rather than graduated delays

• Failure to file a tax return generates a five percent penalty per month up to a maximum

of twenty-five percent.

• Failure to pay income tax after filing a timely return results in up to twenty percent of the

unpaid tax being assessed within sixty days.

• Negligence or intentional disregard of rules carries up to twenty-five percent penalties.
• Fraud violations result in up to fifty percent penalties.

Consequences of Ignoring Penalty Notices

Unaddressed penalty notices typically trigger escalated collection efforts from the Hawaii

Department of Taxation. The state may file a notice of tax lien against your property, creating a public record of the debt that affects your ability to sell property or obtain financing.

After a period of non-response, collection actions may include

• The state may pursue wage garnishment of the business owner’s personal income.
• The Department can garnish business bank accounts to collect unpaid amounts.
• The state may suspend or revoke business licenses as an enforcement action.
• The Department can prevent license renewals until you resolve the debt.

Each enforcement action adds administrative fees to the debt total. Payroll withholding taxes representing employee income tax withholdings are generally non-dischargeable priority debts in bankruptcy proceedings, meaning standard bankruptcy relief does not eliminate these obligations.

What Penalty Notices Do Not Mean

Receiving penalty and interest notices does not mean criminal charges have been filed or will be filed automatically. These notices represent administrative collection actions rather than criminal prosecutions. The state has not seized assets or frozen accounts until separate enforcement notices are issued for those specific actions.

Penalties and interest do not prevent you from addressing the debt or negotiating resolution options. You retain the ability to contact the Department, request payment arrangements, or seek penalty relief through established processes.

Steps to Address Withholding Tax Penalties

Review the official notice completely to identify the tax type, tax period, total amount due, notice date, response deadline, and department contact information. Confirm the tax period matches your business records and verify the notice references the correct business name and account number.

Gather documentation, including

1. Gather payroll records, Form W-2, and Form HW-2 for the tax period in question.

2. Collect tax deposit receipts and cancelled checks showing payment dates and amounts.

3. Obtain correspondence from the state related to this tax period.

4. Compile records showing when the state received your payments.

Separate the original tax owed from the penalty amount and the interest amount by writing each component on a separate line. Contact the Hawaii Department of Taxation at (808) 587-4242 or toll-free at 1-800-222-3229 to request clarification on penalty and interest calculations.

Request a payment history from the state showing all deposits made for this tax period.

Compare your records to the state’s records to identify discrepancies or payments the state may not have received or credited correctly.

Payment and Resolution Options

Determine whether you can pay the full amount immediately through the state’s approved payment methods available on Hawaii Tax Online. Contact the state to discuss payment plan options if immediate full payment is not possible, understanding that the Department evaluates requests based on your current financial condition.

Document every interaction with the Department by recording the name of the person you spoke with, the date, the discussion details, and any commitments made. Save copies of all correspondence sent to or received from the state, including any tax return filings or amended submissions.

Requesting Penalty Abatement

Hawaii Revised Statutes section 231-39 allows penalty relief when failure to file or pay is due to reasonable cause and not due to neglect. You may request penalty abatement through three methods: a written petition stating why you qualify for relief, a verbal request by phone or in-person meeting, or formal administrative processes.

Ask what documentation the Department needs to review your request, which may include copies of Form W-2, Form HW-2, Form HW-14, Form HW-26, or Form HW-30 filings. Explain the reason for late payment or underpayment if a legitimate administrative error or unusual circumstances prevented timely compliance. The Department reviews requests and sends written responses explaining approval or denial decisions.

Critical Mistakes to Avoid

Missing notice deadlines allows penalties and interest to grow larger because the Department typically does not extend deadlines without a written agreement. Ignoring follow-up notices creates additional complications and allows enforcement to proceed without your input.

Providing incomplete financial information when requesting payment plans may result in the denial of arrangements. Moving without notifying the Department prevents them from contacting you about case developments or enforcement status changes.

Failing to keep detailed records of payments and correspondence makes proving what you paid difficult. Sending payments without proper documentation identifying which tax period they apply to may result in misapplied credits on your income tax account.

Following Through on Agreements

After contacting the state or making payment through Hawaii Tax Online, the Department updates your account record. Full payment satisfies the debt and stops further collection action.

Established payment plans require monitoring by the state, which sends periodic statements showing remaining balances.

Penalty abatement requests receive written responses after Department review, which may require additional documentation before final decisions. No payment or arrangement allows collection efforts to continue, potentially leading to liens or garnishment proceedings that complicate your financial obligations.

Understanding Your Rights

Hawaii law provides procedures for disputing assessments and requesting relief from collection actions related to Hawaii income tax obligations. You maintain appeal rights even while discussing payment arrangements with the Department. Taking action now demonstrates responsibility and provides access to arrangements unavailable if you ignore the issue.

Facing State Enforcement or Payroll Tax Issues?

If you’ve received a state tax notice and aren’t sure how to respond, we can help you review your options and next steps.

We help with

• State enforcement actions and notices
• Payroll tax debt review and resolution
• Penalty and interest reduction options
• Payment plans and compliance solutions
• Representation before state tax agencies

20+ years experience • Same-day reviews available