You Owe Taxes in California – What Happens?
We talk a lot about what to do when you owe the IRS or if you’re dealing with IRS-related issues, but what about state taxes — specifically, California?
If the California Franchise Tax Board (FTB) determines you have a balance due, there are several actions it can take. Many options of which are similar to actions the IRS can take. If you owe taxes to the FTB, the following information will help you understand the agency’s collection process.
Avoiding State of California Franchise Tax Board Enforcement Action
The California Revenue and Taxation Code (R&TC) provides authority for the FTB to take involuntary collection actions when taxpayers are delinquent in paying their state income tax. You can prevent involuntary collection actions if you:
- Pay your tax liability in full
- Enter into an installment agreement
- File required tax returns and pay the balance due or provide proof that
- you have no filing requirement
- Make an offer in compromise that they accept
- Establish that a financial hardship prevents you from paying your liability, also known as “currently not collectible” status
Tools of the Trade
Here is a breakdown of actions the FTB has at its disposal:
- Tax liens
- Bank, wage, or other levies
- Interest rates
- Installment agreement rejection
- Claim for refund — time limit (if you are due a refund or overpaid, you can file a refund claim until the latter of four years from the due date of your tax return or one year from the date of overpayment)
FTB fees and penalties can also include:
- Late filing penalty —25% of the amount due. After applying any payments and credits made on or before the original tax return due date.
- Late payment penalty — 5% of the unpaid tax (underpayment). Plus, 0.5% of the unpaid tax for each month or part of a month it remains unpaid, for a maximum penalty of 25% of the unpaid tax.
- Estimated tax penalty — a penalty on any unpaid amount from the due date of the estimated tax installment to the date they receive your payment. Or, to the due date of the tax return, whichever is earlier.
- Mandatory e-pay penalty — 1% of the amount paid. Unless your failure to pay electronically was for reasonable cause and not willful neglect.
- Dishonored payment — if your financial institution does not honor a payment you make to the FTB by your check, money order, or electronic funds transfer. The penalty is 2% of the payment amount ($1,250 or more). For a payment less than $1,250, the penalty is $25 or the payment amount, whichever is less.
- Demand to file penalty — if the FTB sends you a demand to file your income tax return or to provide them with information, and you do not comply, they impose a penalty of 25% of the tax on their assessment before applying any payments or credits