Pick your poison:

Hidden text is not a penalty just waiting to happen. There are many different ways to hide text such that Google will not penalize you for doing so. In terms of hidden text, Google’s logic for determining whether or not a particular implementation is penalty-worthy ALL boils down to intent. Google recognizes that the webmaster decides what his/her website should look/feel/act like. They know that not every webmaster is trying to deceive them and that, in most cases, a penalty-worthy technique being implemented on a website is likely a mistake or an accident on the webmaster’s part. Enter intent.

Now, I’d love to hear the ways that Google programmatically determines the intent of a webmaster, excluding those with obviously “sneaky” intentions, however I’ve not been able to find an official answer (it’s not something they’re going to tell us I imagine). The big concern on the webmaster’s end is whether or not their “white hat” implementations of hidden text are going to trip the filters. It’s a damn good concern. However, there is some comfort in knowing that Google’s (un?)official stance on hidden text is:

“there are more ways of hiding text than there are flavors of ice cream at Baskin Robbins. What matters to Google is not the way in which you are hiding text, but (1) the text you are hiding and (2) the reason you are hiding it.” - “Bergy” Berghausen

However, if you read the “official” official statement on hidden text from Google, it does not allude to this as clearly as Bergy does. Here’s where you have to read between the lines:

"If your site is perceived to contain hidden text and links that are deceptive in intent, your site may be removed from the Google index, and will not appear in search results pages."

To me that means the same thing that Bergy meant by what he said. In summary, they’re simply saying to make sure Google see what the user sees. That means things like display:none, visibility: hidden, and z-index: -1000px are OK as long as two things are true. 1) The users can (or will in the case of a drop-down menu for example) see what you are “hiding” and, 2) Google does not programmatically misinterpret your intent and remove your site for up to “30 days” causing you to go through the “Reconsideration Request” process to prove your non-”evil”ness. Regarding number two, a very concise but extremely sound piece of advice came from Webado on the Google Webmaster Help group earlier this year:

"Just ebcause you find your own navigation OK, by clicking a link here and a link there, doesn’t mean a robot has the same experience."

That makes number two a little more interesting doesn’t it? And I’ll let Christina throw you another big mozza ball to chew on…

"Intent is not quite so easy to judge programmatically. You may want to ponder that some more."

So, even though you have good intentions, you are still at risk BUT you have recourse. In summary, hide away but make sure you know how to see exactly what Google sees and how to file a Reconsideration Request before implementing anything. And also be prepared to wait up to 30 days before showing up in Google again should you ever get nailed by the filters.