Estimated Tax Penalty, Late Filing Penalty, Late Payment Penalty & More
Can anyone keep track of all the different California Franchise Tax Board (FTB) fees and penalties? If you owe taxes, you’ve got to keep an eye on them, or your tax liability can quickly get out of hand. At a minimum, you should know that they exist.
The most obvious penalties are the “late filing penalty” and the “late payment penalty.” The late filing penalty is imposed for filing after April 15th, or after the extended due date, as the case may be. The amount of this penalty is 25 percent of the amount due. The late payment penalty is assessed if the full tax on the return is not paid by the original due date. The penalty is 5 percent of the amount that was not paid, plus .5 percent monthly, until it is paid (subject to a 25 percent maximum).
Other common penalties include the “estimated tax penalty” and the “demand to file penalty.” Obviously if you are required to make estimated tax payments and you either don’t pay in full or pay late, you’ll be subject to the estimated tax penalty. The demand to file penalty is almost what you’d think. If FTB sends you a letter demanding that you file a certain tax return, or provide certain information, and you disregard it, they will impose a 25 percent penalty. The catch is that they figure the penalty based on the FTB’s assessment before applying any payments or credits (not your own return), which sometimes has seemingly unfair results. Where else might you owe penalties and interest even if your tax return shows that a refund is due? Not with the IRS, that’s for sure. The IRS does not typically care if you file a return if that return is going to result in a refund.
I do understand the rationale of requiring a return, even if reported income and withholding information suggests that no tax would be due. The reasoning is that the FTB simply wants the taxpayer to certify (by filing a return) that there is no additional income or taxable events that may have not been reported by third parties.
There are also a number of “cost recovery fees” that could be imposed by FTB that drive up the balance of a tax bill. FTB charges a fee if your account is assigned to filing enforcement or to collections. There are also fees associated with filing a tax lien or seizing and selling property. You can read all about FTB collection procedures in publication 1140.