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Quarterly taxes California - Know how to send payments

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Updated on:
December 11, 2022
December 11, 2022
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Many people have to file their quarterly taxes in California on their own. Rather than having to make full payments in a bigger lump sum, quarterly estimated payments allow you to break down everything into four different quarters.

But who needs to pay these quarterly taxes, and how much do you have to pay exactly? What are the due dates that you'll have to expect this year - and most importantly, what will happen if you fail to make those payments on time? Well, read on to find out.

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Who Needs to Pay Quarterly Estimated Taxes?

Do you have to pay estimated taxes? Well, you should make estimated tax payments if, by the end of the tax year, you expect to owe taxes more than:

  • $500, if you are filing to the FTB as a corporation
  • $250, if you married and/or filing RDP separately
  • $1000, if you are self-employed and are filing to the IRS for tax return

Also, both the IRS and the Franchise Tax Board expects your withholdings and tax credits to be less than at least one of the following:

  • 90% of the current year's tax
  • 100% of the previous tax year (alternative minimum tax included)

No matter the source of your income, if you expect to owe the amounts mentioned above, then you will need to file for estimated taxes. Otherwise, you'll become subject to tax liability.

Does California Require Estimated Tax Payments?

As with every other state in the United States, California also requires you to make estimated tax payments. If you expect to owe an estimated tax of at least $500 to the IRS, then you have to gather your records and file your estimated taxes. Make sure you respect the deadlines for the tax year that you are paying for.

When Is the Due Date for Estimated Payments?

Due dates for quarterly estimated tax payments are spread throughout the year, having you input four forms and payments. The dates for California are the same as with the rest of the United States. The only difference is the percentage needed for each payment.

This is how much you will have to pay for each due date:

  • First Quarter - April 15, 2021 - 30%
  • Second Quarter - June 15, 2021 - 40%
  • Third Quarter - September 15, 2021 - 0%
  • Fourth Quarter- January 18, 2022 - 30%

It is important that you respect all of these due dates. Otherwise, you will be subjected to tax liability, for not reporting your taxable income.

How Much Do You Have to Pay?

Figuring how much tax you have to pay can be slightly tricky, especially if you are only beginning as a self-employed person. The main idea here is to estimate just how much you're likely to owe in the year that comes so that you may apply for tax relief.

A helpful tool would be to take your records from the prior year and use them as a guide. If you determine that your California revenue has changed throughout the year, you need to make the updates accordingly.

Remember, it's always better to pay slightly more than slightly less when making your estimated tax payments. If you pay more, then you may get your money back.

However, if you pay less, you may be charged with willful neglect, and the California FTB will charge tax liability on you. You need to make sure that you cover the payment amount by the quarterly due dates.

If you are not fully certain how much you have to pay in estimated tax or cannot make a prediction, then you may ask for help from the California FTB. They will help you predict some reasonable estimated tax payments.

How Do I Pay Estimated Taxes for 2021 in California?

There are two ways for you to pay your estimated taxes. The first one is to go to the main IRS website and make the payment there. This is often a good option when you want to make the payment from the comfort of your home.

The second option is to go by traditional mail to the Franchise Tax Board - and make sure you write everything clearly. The address is PO Box 942867, Sacramento CA 94267-0008.

When you make the payment online or send the money order to the California Franchise Tax Board, you also need to put down your ITIN or SSN. Alongside that information, you must also add Form 540-ES.

Bear in mind that each due date has its own payment form. Therefore, when you are paying income tax, make sure that you pick the right one, with the correct date.

Is Paying Quarterly Taxes Mandatory?

If you do not want to incur estimated tax payment penalties, then yes, these payments are mandatory. The tax code says that anyone who expects to owe taxes of at least $500 must make a quarterly estimated payment.

What Happens If You Don't Pay Estimated Taxes?

First things first, if you fail to pay your state income tax to the California Franchise Tax Board on time, then you risk an estimated tax penalty. Depending on how late you are, the penalty may vary.

Moreover, if the California Franchise Tax Board determines that your balance is due and you haven't paid your alternative minimum tax, they may garnish your wages.

Depending on your debt, they can also record and file liens against your property, levy what bank accounts you may have, and seize your assets.

Last by not least, when you make estimated tax payments, you also become eligible for income tax return. By failing to make this payment, you forfeit your right for getting said tax return.

Estimated Tax Penalties

The California Franchise Tax Board will also incur several penalties if you fail to make your estimated payments on time. Depending on your offense, you may end up paying the following penalties:

  • Estimated Tax Late Filing Penalty: 25% of the amount due
  • Late Payment/Underpayment Penalty: 0.5-25% of the underpaid tax
  • Mandatory e-Pay Penalty: 1% of the amount paid
  • Dishonored Payment Penalty: $25 for payments less than $1,250 and 2% for payments over that amount.

Underpayment penalties happen when you fail to make the estimated tax payments in full on time. These penalties will usually take place when you file for tax returns at the end of the taxable year.

To calculate your penalties for underpaid estimated payments, you will need to use IRS Form 2210. The first page of this form has a flowchart that will tell you whether you have to file the form as well or not.

Even if there is no need to file Form 2210, you may still use it in order to calculate the approximate penalty that you owe.

Note: the best way to avoid penalties is to file the correct payments on time.

Calculating the underpayment amount can be fairly challenging, as the rates change from one year to another. In most cases, a tax advisor might be necessary. That being said, you may still follow the list of instructions from Form 2210.

If you want to spare yourself the headache, you may simply leave this in the hands of the IRS. Keeping your estimated payments in mind, they will calculate the penalty amount.

Also, if you pay the entire amount that you owe by the bill due date, it won't even take any extra fees or penalty for overpayment. This is how things are typically done:

  1. The IRS will make use of your tax return in order to determine the amount in tax payments that you should have made.
  2. A penalty rate percentage may be applied to determine the penalty for every quarter
  3. The penalty amounts for each quarter will be added, resulting in the full underpayment penalty that you'll need to pay by the end of the tax year.

To calculate a California quarterly tax underpayment, Form 5805 may be used. The form itself and the rates may be different, but the technique is the same. You can still leave it to the IRS to take care of things for you.

When Can the Penalty Be Waived?

In certain circumstances, the penalty can also be waived. First, if you subtract your withholding, tax credits and estimated payments, and owe less than $500 to the FTB, you are not charged a penalty. The same applies if you owe less than $100 to the IRS.

If you didn't get any income tax liability in the prior year, then you'll also be spared the penalty. Fishermen and farmers go by special rules as well, and may not pay a penalty.

Some special circumstances might also waive your penalty:

  • If you are a disabled person or can prove that your reason for underpayment was not caused by willful neglect.
  • If you suffered an injury or were a victim of a disaster or casualty that prevented you from making the payment on time.

No matter the cause for the underpayment, you need to bring proof that supports your claims.

Concluding Remarks

Tax time can be rather stressful for many residents of California, and quarterly taxes are no exception. Make sure that you save your receipts ahead of time to pay less California taxes and that you calculate everything carefully. This will help you prevent an accidental underpayment.

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