California Franchise Tax Board and Mandatory Electronic Payments

Published on Friday, January 7, 2011

California has passed a law requiring individuals to remit all future tax payments electronically once they either make an estimated tax or extension payment in excess of $20,000 or file a tax return reporting total tax in excess of $80,000.

Effective January 1, 2011, the Franchise Tax Board will begin assessing a penalty equal to 1% of the amount paid if a required electronic payment is paid by other means.

Although not all California filers will meet the requirements to be included in the mandatory electronic payment program, California does encourage taxpayers to voluntarily make their payments electronically, citing the following benefits:

• The ease of e-filing your return and setting up an electronic payment for the filing deadline
• To ensure that the FTB receives your payment timely
• You can subscribe for email reminders to remit your quarterly estimated tax payments
• You can schedule all of your quarterly payments at one time

There are four methods in which you can transact your electronic payment:

• Pay online through the “web pay” system. This is essentially a direct withdrawal out of a designated account.
• Pay by phone, through direct withdrawal.
• Pay by credit. Note, you are subject to a fee equal to 2.5% of the amount charged.

While many of us view this requirement as a nuisance and it doesn’t affect too many of our clients, it is important to recognize that California is typically a “leader” in this area. It is likely that many other states will follow suit with electronic payment requirements and that eventually the payment thresholds will likely be lowered. At some point in the future we will probably be making all federal and state payments electronically, so even if we do so begrudgingly, we might as well get familiar with the processes now.

Tyler M. Nyman