California Electronic Payment Requirements: Who Must Pay and How

California requires certain taxpayers to make electronic payments to improve efficiency and ensure timely processing. These rules apply to businesses and individuals who meet specific thresholds. Noncompliance can lead to financial penalties, but multiple electronic payment options are available, along with exemptions for qualifying taxpayers.

Who Must Pay Electronically

Taxpayers meeting specific thresholds must use electronic funds transfer (EFT). Businesses and individuals with an estimated tax liability of $20,000 or more in a single tax year must comply. Those making quarterly estimated payments must also use EFT if any single payment exceeds $20,000.

Sales and use tax filers with an average monthly tax liability of $10,000 or more, based on the previous year’s filings, must pay electronically. The California Department of Tax and Fee Administration (CDTFA) monitors compliance and notifies affected businesses.

Employers handling payroll taxes must also comply. If total state payroll tax deposits exceed $50,000 in a calendar year, all future payments must be made electronically. This includes unemployment insurance, employment training tax, and state disability insurance contributions. The Employment Development Department (EDD) enforces these rules and provides compliance guidance.

Payment Methods

California offers several electronic payment options. The most common is EFT, which allows direct bank transfers through Automated Clearing House (ACH) debit or credit. ACH debit lets taxpayers authorize the state to withdraw funds on a specified date, ensuring timely payments. ACH credit requires taxpayers to initiate the transfer through their bank, which may charge processing fees.

For those preferring an online interface, the CDTFA and Franchise Tax Board (FTB) provide secure web portals for electronic payments. These portals support direct bank payments and credit or debit card transactions. Credit card payments incur a 2.3% service fee, while debit card payments have a flat $1 fee.

Large businesses and government entities often use the Statewide Integrated Financial Tools (SWIFT) system, which facilitates high-volume transactions with detailed reporting and reconciliation features.

Penalties for Noncompliance

Failing to use electronic payment methods when required results in a 10% penalty. For example, a business owing $25,000 in sales tax that pays by check instead of EFT incurs a $2,500 penalty. This charge is automatically assessed and can only be waived under specific circumstances.

Interest accrues on unpaid balances, increasing costs. Under California Revenue and Taxation Code 6591, interest is based on the state’s annual adjusted rate, updated semiannually. As of 2024, the rate is 10% per year, meaning a $50,000 unpaid balance accrues $5,000 in annual interest.

Repeated violations can lead to audits and potential holds on business licenses. The FTB and CDTFA monitor noncompliant taxpayers and may issue formal demands for electronic compliance under California Revenue and Taxation Code 19141. Continued failure to comply can result in additional penalties and, in extreme cases, collection actions such as liens or levies on bank accounts.

Exemptions

Certain taxpayers may qualify for exemptions due to financial hardship, technological limitations, or regulatory provisions. Requests must be formally submitted with supporting documentation. The FTB and CDTFA evaluate these on a case-by-case basis, considering access to electronic banking and prior compliance history.

Businesses or individuals in rural areas with limited internet access or banks that do not support EFT may qualify. Documentation, such as a letter from a financial institution confirming the lack of EFT services or proof of residence in an area with unreliable internet, is typically required. Some nonprofit organizations and government entities may also receive waivers if electronic payment requirements create significant administrative burdens.