The California Franchise Tax Board is in charge of collecting taxes across the state of California. To encourage people to make timely and correct payments as they complete their taxes, they have established a system of penalties for those who do not do so. Some of the most common penalties imposed by the board are late filing penalties and late payment penalties.

Can I Be Penalized by the California Franchise Tax Board?

Despite the name, the California FTB doesn’t just tax franchises. The entity is responsible for two major tax programs for the state – the corporation tax and personal income tax. Their aim is to make taxpaying in the state easier and more streamlined. However, filing state taxes may be a challenge for some, leading them to incur serious penalties. To ensure that funds are distributed statewide and that Californians pay their taxes on time, the FTB charges more for various issues that holdup their processes.

Does the FTB Charge for Late Filing?

The late filing penalty specifically applies to those individuals who have not paid the balance of their taxes by the due date and did not file their taxes. This does not apply to those who have correctly applied for and been granted an extension on their filing or payment.

After all extensions have transpired, the offending party is charged a penalty that is 5% of the original amount due after any timely payments or credits are applied. If the individual continues to not pay each month, an additional 5% is applied to the amount of the penalty up to a maximum of 25%. The minimum penalty for individuals is either $135 or 100% of the amount of tax due after applying any credits or payments made on time, whichever is less.

Is There a Penalty for Late Payment with FTB?

When an individual doesn’t pay the entire amount of their taxes by the due date, they are subjected to a penalty of 5% of the unpaid taxes that remain due. An additional 0.5% for each month that the taxes remain unpaid is added to the penalty to a maximum of 25% of the unpaid tax.

Does Penalty Interest Accrue for Late FTB Payments?

Where things can get particularly difficult in dealing with these fines is that interest accrues on all penalties and unpaid taxes. As of 2019, there is a 5% interest rate applied to these taxes and penalties, which continues to compound. This means that even relatively modest penalties will continue to grow if unaddressed and can end up being much more severe than they were. For this reason, speedy remediation of your tax penalties is essential.

What Happens If I Can’t Pay FTB?

In certain situations, taxpayers can apply for penalty abatement. This is a waiver that provides temporary relief from some assessed penalties. It is possible to apply for penalty abatement if you believe that reasonable cause for non-compliance can be established. Reasonable cause can mean many things and could include:

  • Personal injury, disaster, or illness: If you fell ill or were in the hospital leading up to or at the time of your tax deadline, the FTB may see fit to grant you a penalty abatement even if you were unable to file for an extension.
  • Improper advice from a tax professional as to the law: If you were misguided by a legal practitioner or tax professional who you were relying on to do your taxes accurately or on time, the FTB might remediate the situation by abating the taxes.
  • Financial inability to pay the taxes in the case of late payment: Depending on the circumstances that brought about the financial inability to pay, the FTB may allow for abatement of the penalties in order to alleviate financial hardship. However, this is very case by case.

However, not just anything can be used for an application for abatement. Causes that will not count as reasonable include:

  • Ignorance, stress, or complexity of the law: Because tax law is publicly accessible and you have access to your finances, there is no exception made for ignorance of your tax liability.
  • Reliance on an agent (CPA or attorney) to file on your behalf: Getting improper advice from a tax professional is one thing, but relying on them to execute all portions of the filing and payment process is not grounds for abatement, even if they fail to do so.
  • Lack of necessary information or documents: It is a requirement that you maintain records to pay taxes, so failure to do so is not sufficient.

Avoiding Penalties

These and many other potential penalties for misfiling can be avoided upfront by utilizing trusted tax professionals and involving them early on in the process of filing your taxes. Tax laws are immensely complicated. Having an experienced tax attorney to help you through the process can save you money and anxiety.

FAQs

Q: What Is the Penalty for Failure to Pay by the Franchise Tax Board?

A: The penalty for failure to pay the FTB is 5% of the unpaid taxes, which is due immediately after the date it was due. Each month after the first, an additional 0.5% of the balance will be applied to a maximum penalty of 25% of the initial outstanding amount.

Q: What Is the Penalty for Failure to File?

A: This is the penalty applied when you did not file your taxes by the time that they were due, after all extensions granted by the Franchise Tax Board. The penalty for failure to file by the Franchise Tax Board is 5% of the original amount of the taxes, which are still due at the time payment was required to be received. There is a minimum penalty for individuals of 100% or $135 of the taxes due, whichever the lesser amount is.

Q: What Is the Penalty for Not Paying Electronically?

A: Certain people are required to pay their taxes electronically, and failure to do so results in tax penalties. For individuals, this is 1% of the amount that you didn’t pay electronically, while for businesses, this is 10% of the amount that was not paid electronically.

Q: What Is the Demand Penalty?

A: If you received a “demand for tax return” letter and did not file by the date on the letter, you could be fined up to 25% of the amount due even if you have already made payments or a refund is due to you.

Find Experienced Tax Attorneys at Fishman, Larsen & Callister

At Fishman, Larsen & Callister, we offer strategic legal guidance about your taxes and what you can expect from the process. We have extensive experience in dealing with the complexities that can arise when working with the Franchise Tax Board. Reach out to us today so that we can help with any trouble you’ve been having and so that we can discuss helping you to avoid it in the future.