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Common California FTB Delinquent Tax Penalties and Penalty Abatement
Contents
- 1 Dealing with California FTB Delinquent Tax Penalties – A Practical Guide
- 2 You Missed a Tax Filing Deadline, Now What?
- 3 The Dreaded Delinquent Filing Penalty
- 4 The Infamous Failure to Pay Penalty
- 5 Estimated Tax Underpayment Penalties
- 6 Other Costly Penalties to Avoid
- 7 But I Had a Good Reason! Requesting Penalty Relief
- 8 New for 2023 – The One-Time Penalty Abatement
- 9 Don’t Let Penalties Spiral Out of Control
Dealing with California FTB Delinquent Tax Penalties – A Practical Guide
You Missed a Tax Filing Deadline, Now What?
So, you missed a California tax filing or payment deadline – it happens, but don’t panic. The key is understanding the potential penalties, and taking swift action to minimize the damage. We’ll walk through the most common California Franchise Tax Board (FTB) penalties for delinquent taxes, and how to request penalty relief or abatement. But first, take a deep breath – this is solvable.
The Dreaded Delinquent Filing Penalty
One of the biggest penalties you may face is for failing to file your California tax return on time. Even if you can’t pay the full amount due, you must still file a return to avoid this costly penalty.Here’s how it breaks down: if you don’t file by the original due date (typically April 15 for individuals), the FTB can tack on a delinquent filing penalty of 5% of your unpaid tax – for each month or partial month your return is late. Ouch, that adds up quickly, with a maximum of 25% of your total tax bill.But wait, there’s more – if your tax due is $540 or less, the penalty is either $135 or 100% of the tax owed, whichever is less. So, if you owe $200 in taxes, your delinquent filing penalty could be the full $200! 2The lesson? File that return, even if you can’t pay yet. Dealing with the tax debt is better than compounding penalties.
The Infamous Failure to Pay Penalty
In addition to the delinquent filing penalty, you may also face failure to pay penalties if you file your return but don’t pay the full tax due by the deadline.This one is a double whammy – first, there’s a late payment penalty of 0.5% of your unpaid tax, per month (up to 25% maximum). On top of that, you’ll owe 5% of the unpaid tax right off the bat. Yikes!For example, if you owed $10,000 but didn’t pay until 6 months later, your penalties could look like:
- 5% initial late payment penalty = $500
- 6 months x 0.5% monthly penalty = $300
- Total penalties = $800
That’s an 8% penalty just for being 6 months late on a $10,000 tax bill! The moral? Pay what you can, when you can – even partial payments help reduce these hefty penalties. 24
Estimated Tax Underpayment Penalties
If you’re self-employed or have significant income outside of your job’s withholding, you likely need to make quarterly estimated tax payments. Miss one of those payments (or underpay), and you could face yet another penalty from the FTB.The estimated tax penalty applies to any underpaid amount from the due date of the estimated payment until either:
- The date you pay it, or
- The due date of your tax return (whichever is earlier)
The penalty rate matches the FTB’s current interest rate – currently 8% for personal income tax underpayments as of 2024. Ouch again! 18
Other Costly Penalties to Avoid
There are a few more penalties that could come into play:
- Dishonored Payment Penalty: If your check bounces or electronic payment is rejected, you’ll owe 2% of the payment amount (or $25 if under $1,250). 13
- Demand to File Penalty: Ignore the FTB’s demand to file a return, and they can assess a 25% penalty on your total tax due before credits/payments. Brutal! 13
- Mandatory e-Pay Penalty: Once your tax liability exceeds $80,000 or estimated payments hit $20,000, you must pay electronically. Fail to do so, and it’s a 1% penalty. 13
The takeaway? Respond promptly to FTB notices, pay electronically when required, and don’t let your bank account get overdrawn when making payments. Every little mistake can cost you.
But I Had a Good Reason! Requesting Penalty Relief
Thankfully, the FTB does allow taxpayers to request penalty relief or abatement if you can show reasonable cause for your failure to file, pay, or properly estimate taxes.What qualifies as reasonable cause? Situations generally out of your control like:
- Personal illness or injury
- Natural disaster impacting your records/ability to comply
- Incorrect advice from a tax professional
- Unable to obtain records in a timely manner
- Other circumstances that prevented compliance despite ordinary business care and prudence
The key is acting in good faith and providing solid documentation to support your reasonable cause claim. 414To request penalty abatement, you’ll need to file:
- For Individuals: FTB Form 2917 – Reasonable Cause – Individual and Fiduciary Claim for Refund
- For Businesses: FTB Form 2924 – Reasonable Cause – Business Entity Claim for Refund
Attach a detailed explanation and any supporting documents showing your reasonable cause. The FTB will consider your specific facts and circumstances in determining if you qualify for penalty relief.
New for 2023 – The One-Time Penalty Abatement
In a taxpayer-friendly move, California recently added a new “one-time abatement” option that allows qualifying taxpayers to have penalties cancelled just this once, without having to prove reasonable cause.To be eligible, you must:
- Be an individual taxpayer (not a business)
- Have paid or arranged to pay all other tax debts
- Be compliant with all tax filing requirements
- Not have received this one-time abatement before
If you meet those criteria, simply call 800-689-4776 or file FTB Form 2918 to request your one-time pass on penalties like failure to file or pay on time. Easy as that – no reasonable cause explanation needed! 12
Don’t Let Penalties Spiral Out of Control
At the end of the day, the best way to avoid these penalties is to file and pay your California taxes on time every year. But if you do fall behind, don’t stick your head in the sand!The longer you wait, the more those penalties will pile up with interest compounding daily. Take control of the situation by:
- Filing all delinquent returns immediately, even if you can’t pay yet
- Making any payments you can afford to minimize additional penalties
- Requesting an installment agreement if you need more time
- Claiming reasonable cause or the one-time abatement for penalty relief
The FTB staff is generally willing to work with you and abate penalties, as long as you make an honest effort to get compliant. But avoiding them altogether is far easier and cheaper.So file on time, pay what you can when you can, and take advantage of the reasonable cause and one-time abatement options if you need penalty relief. With some discipline and the right strategy, those penalties don’t have to break the bank.