State Tax Amnesty and Penalty Relief Programs: Indiana, Illinois, and Washington
Several states are offering limited-time tax amnesty and penalty relief programs that allow eligible taxpayers and businesses to resolve outstanding tax obligations while reducing or eliminating penalties. Although these programs share the goal of encouraging voluntary compliance, each has unique eligibility requirements, covered tax periods, and application rules.
Indiana Tax Amnesty 2026
The Indiana Department of Revenue’s Tax Amnesty Program runs from July 15, 2026 through September 9, 2026. The program applies to eligible state tax liabilities for tax periods ending before January 1, 2024. Taxpayers who participate and meet the program requirements can receive a full waiver of penalties, interest, and collection fees.
To qualify, taxpayers must pay all eligible tax liabilities in full during the amnesty period or establish an approved payment plan by September 9, 2026. Payment plans must be completed by June 7, 2027, to maintain amnesty benefits. Taxpayers who participated in Indiana’s previous amnesty programs in 2005 or 2015 are not eligible. Eligible taxpayers who fail to participate may be subject to additional penalties after the program ends.
Illinois Remote Retailer Tax Amnesty Program
Illinois has established a specialized amnesty program running from August 1,2026 through October 31,2026 for remote retailers that have reached economic nexus ($100,000 annual sales) and have made taxable sales into Illinois without a physical presence in the state. The program covers sales tax reporting periods from January 1, 2021, through June 30, 2026. It is designed to simplify compliance for businesses that may have incomplete historical location data needed to calculate local sales tax. Qualifying retailers can resolve past liabilities while receiving waivers of penalties and interest. The program also provides simplified tax rates of 9% for general merchandise and 1.75% for qualifying food, medicines, and certain medical products, making compliance easier for participating businesses.
Washington ESSB 5814 Penalty Relief Program
Washington’s Department of Revenue has introduced the ESSB 5814 Penalty Relief Program for businesses affected by the expansion of retail sales tax to certain services under ESSB 5814. Beginning October 1, 2025, many services became subject to Washington retail sales tax, creating compliance challenges for businesses unfamiliar with the new requirements.
Unlike traditional tax amnesty programs, Washington’s initiative provides penalty relief only. Businesses remain responsible for paying the underlying tax liability and any applicable interest. The program covers reporting periods from October 1, 2025, through December 31, 2026, and businesses must submit an application by September 30, 2027 to qualify. Certain penalties, including evasion, negligence, and tax avoidance penalties, are specifically excluded from relief. Applicants must voluntarily disclose the liability, complete the online application process, sign a Penalty Relief Agreement within 30 days if approved, and pay the assessed tax and interest by the due date to receive the penalty waiver.
Amnesty Programs vs. Voluntary Disclosure
These limited-time amnesty and penalty relief programs differ from a state’s traditional voluntary disclosure agreement (VDA) program. Amnesty programs are available only during specified enrollment periods and may offer broader relief, including the waiver of penalties and, in some cases, interest. By contrast, VDAs are generally available year-round, typically require taxpayers to come forward before being contacted by the state, and often provide penalty relief and a limited lookback period while still requiring payment of the tax and applicable interest.
Because the benefits and eligibility requirements vary by state and by a taxpayer’s specific circumstances, businesses should carefully evaluate their options before participating. If your business may qualify for one of these programs, contact Source Advisors to determine whether an amnesty relief program—or a state voluntary disclosure is the most advantageous approach to resolving historical state tax liabilities.
