Tax Insights

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California tax bill? Mailing in a check? Not so fast

California tax, tax, paymentSo, it’s April 15 and you need to file an extension on your California tax return. No problem, you know there is a balance owed and you plan to send in a check for $25,000 to cover the estimated amount due. Sounds simple enough, right? Well, if you are in California, this may not be as straightforward as would initially appear.

In the above scenario, you just triggered an electronic payment requirement. When a taxpayer makes a single estimated tax or extension payment greater than $20,000; or if he or she has filed an original tax return with a tax liability greater than $80,000, all future payments to the California Franchise Tax Board (FTB) are required to be made electronically. This is true even if future payments are less than $20,000 – all future payments, regardless of amount, will now have to be made electronically. If you pay by some other means, such as a check, you will be subject to a 1% penalty of the amount paid.

The FTB notifies taxpayers of the requirement and the penalty can only be waived for reasonable cause. Also, it is important to keep in mind that electronic payment is still required even if the FTB does not send notification of the requirement.

California payroll reporting also goes electronic

Several methods of payment will meet the requirement, including an electronic funds withdrawal through a tax software program, credit card or by phone. A critical thing to keep in mind is that paying through your bank’s online payment program – commonly referred to as “bill pay” – is NOT considered an electronic transfer for this purpose and you will be subject to the penalty.

While there are ways to request a waiver, you would have to proactively take steps to accomplish this.

Need more info on paying your California tax liability? Check out the FTB website: CA FTB payment choices

This is meant to be a general summary of the California rules so as always, consult your Henry+Horne tax advisor for more information.

Ron Greenfield, CPA