January 05, 2024 by Lisa Brugman, EA
Much like the IRS, California’s taxing agency, the California Franchise Tax Board (or CA-FTB), expects to collect your owed taxes throughout the tax year. If you are a W-2 employee, this is usually done by your employer through your state withholdings as indicated on your CA Form DE-4. If you are self-employed or have income from other sources, such as dividends or a brokerage account, you may need to pay estimated taxes to the CA-FTB.
Generally, the CA-FTB recommends that you make estimated payments if you will owe at least $500
andyou expect your withholding and credits to be less than the smaller of:
- 90% of the current year's tax liability, or
- 100% of the prior year's tax liability.
The CA-FTB also recommends that if your adjusted gross income (AGI) is more than $150,000 when Married Filing Jointly (MFJ) or $75,000 if you are single or married filing separately, you should pay estimated taxes equal to the lesser of:
- 90% of the current year's tax liability, or
- 110% of the prior year's tax liability.
However, there are exceptions for high-income taxpayers. If your AGI is more than $1,000,000 when MFJ or $500,000 if you are single or married filing separately, the CA-FTB may require you to pay at least 90% of the current year’s tax liability to avoid underpayment penalties.
For the tax year 2023, the CA-FTB generally follows the same schedule as IRS federal estimated tax payments. The CA-FTB expects that your payments will be related to your
anticipatedannual taxable income for 2023, and these payments should be made on a quarterly basis.
CA-FTB considers that you, the taxpayer, will review your income throughout the year and make estimated payments accordingly.
- For 2023, your First Quarter estimated payment is due April 18, 2023, and is 30% of your anticipated tax liability.
- For 2023, your Second Quarter estimated payment is due June 15, 2023, and is 40% of your anticipated tax liability.
- For 2023, your Third Quarter estimated payment is due September 15, 2023, and is 0% of your anticipated tax liability.
(Important note: Due to the disasters declared in California in April of 2023, the IRS and the CA-FTB extended the estimated payment due date for the first quarter, second quarter, and third quarter to October 16, 2023. In October of 2023, the IRS and CA-FTB extended the due date (again), for all payments, to November 16, 2023. For more information on California’s handling of the disaster extensions, see CA Emergency Tax Relief.)
- For 2023, your Fourth Quarter estimated payment is due January 16, 2024, and is 30% of your anticipated tax liability. (Note that the fourth quarter deadline is in the following tax year.)
So, how do I know how much to pay?
When your 2022 tax return was filed, if you had a balance due, the tax return had estimated payment vouchers, Forms 540-ES, attached. Each voucher lists the estimated payments based on 100% of that year’s tax liability.
- If you don’t have any other income, you can verify your W-2 withholdings by looking at the amount that has been withheld for state taxes on your paystub and match it to the amount listed on the Form 540-ES voucher. If they match, then no payment needs to be made. If they are significantly different, then you may want to pay the difference by making an estimated payment.
- If you have other income (for example, if you are self-employed), then you will want to review what your income is to date. If it is going to be about the same as 2022, then you can make the payment on the voucher. If it is substantially different, then you will want to adjust your estimated payment relative to your income. You can do this by using the worksheet in the Instructions for Form 540-ES.
How do I make a payment?
- Make sure you have created an account on the CA-FTB website.
- Review or calculate your estimated payment amount as discussed above.
- Log into your CA-FTB account and click on the Make a Payment button.
- Select Estimated Tax Payment (Form 540-ES).
- Be sure to mark the correct tax year. (In this case, we are speaking about 2023 estimated payments.)
- Complete all of the requested information and submit.
You have now made an estimated payment.
If you are unable to make a payment online (paying online is the preferred method), then you can mail your estimated payment, along with the correct Form 540-ES voucher, to the CA-FTB.
What if I don’t want to make estimated payments AND I have W-2 or other income?
(This is not available for individuals with only self-employed income.)
- If you receive income where withholdings are collected and paid to the CA-FTB, such as:
- W-2 income – you can adjust the withholding amount on your DE-4 so that your employer withholds and remits more withholdings to the CA-FTB.
- Retirement distribution, Form 1099-R – you can request that the broker withhold enough money for the taxes that will be due. Depending on your tax bracket, that may be more than the CA-FTB 5% minimum.
- Dividends, Form 1099-DIV – if you receive regular dividend payments, whether quarterly or annually, you can request that the broker withhold taxes according to your tax bracket.
- Example: Your taxable income is $178,500 MFJ which puts you in the 9.3% tax bracket.
In summary, if you receive income from any entity, you may want to consider asking if they can withhold and remit taxes to the CA-FTB.
Best Practices:
- DO NOT combine payments for multiple tax years.
- DO NOT combine tax entities, i.e., your individual tax liability, and an Irrevocable trust tax liability.
- DO make sure your payment is credited to the correct tax year, i.e., 2023.
If you are mailing your estimated payment to the CA-FTB:
- DO make your check payable to Franchise Tax Board.
- DO write your Social Security number on the check.
- DO write the tax year “20XX Form 540-ES” on the check.
- DO include the appropriate voucher with your payment.
- DO mail your timely payment to the address on the voucher.
It is important to make timely estimated payments if needed. If you do not make timely payments, you could be subject to penalties.
Possible penalties could include:
- Failure to pay timely estimated payments.
- Making a late estimated payment.
- Underpayment of estimated taxes.
The CA-FTB may add:
- 5% of the unpaid tax (underpayment), and
- 0.5% of the unpaid tax for each month or part of the month that is unpaid, not to exceed 40 months (accrued monthly).
If you are still unsure if and when to make estimated payments and want help, you can look to a tax professional in your area or go to the IRS page: Choosing a Tax Professional. If you want peace of mind just in case of a future IRS or State of California audit, consider purchasing anAudit Defensemembershiphere.
