California Estimated Tax Payments for Corporations

California corporate estimated tax payments are periodic installments of a company’s anticipated annual franchise or income tax. These state-level payments are distinct from federal requirements and ensure corporations pay their tax liability throughout the year as income is earned. The process involves calculating expected income, applying the appropriate tax rate to determine the total liability, and paying it in quarterly installments.

Determining the Requirement to Pay

A corporation must make California estimated tax payments if it anticipates owing $500 or more in franchise or income tax for the current year. Since California imposes an $800 minimum franchise tax for most corporations, nearly every business in the state will meet this requirement. This minimum tax is due annually, regardless of whether the corporation is active, inactive, or operates at a loss.

C corporations are subject to the state’s tax on their net income. S corporations are subject to a 1.5% entity-level tax on their net income in California, in addition to the minimum franchise tax. For new corporations, the minimum tax is waived for their first taxable year, though they must still make estimated payments based on projected net income.

Calculating the Required Annual Payment

The required annual payment is derived by multiplying the corporation’s estimated net income for the tax year by the applicable California tax rate. For C corporations, the rate is 8.84%, while S corporations are taxed at 1.5%. Banks and financial corporations are subject to a higher rate of 10.84%.

To avoid underpayment penalties, a corporation must pay the lesser of two amounts: 100% of the tax shown on the prior year’s return or 100% of the tax for the current year. This rule provides a safe harbor, but the prior year’s tax return must have covered a full 12-month period to qualify.

A special provision applies to “large corporations,” defined as those with a California net income of $1 million or more in any of the three preceding tax years. These entities are required to pay 100% of the current year’s tax liability and cannot rely on the prior-year tax safe harbor, except for their first installment. Any reduction in the first payment from using the prior-year figure must be recaptured and added to the second installment.

Payment Due Dates and Installment Amounts

For corporations on a calendar year, estimated tax payments are due in four installments. The California Franchise Tax Board (FTB) has established a specific payment schedule:

• First installment (April 15): 30% of the total estimated tax
• Second installment (June 15): 40% of the total estimated tax
• Third installment (September 15): No payment required
• Fourth installment (December 15): 30% of the total estimated tax

If the total estimated tax is less than the $800 minimum franchise tax, the full $800 must be paid by the first installment deadline.

For businesses with income that is not earned evenly, the Annualized Income Installment Method offers an alternative. This method allows a corporation to calculate payments based on the income earned in the months preceding each due date, which can be helpful for seasonal businesses.

How to Make Payments

Preparation – Information and Forms

To make a payment, a corporation needs its seven-digit California Corporation Number and its Federal Employer Identification Number (FEIN). These numbers are required for all payment methods to ensure funds are credited correctly. For payments by mail, Form 100-ES, Corporation Estimated Tax, must be used as a payment voucher to accompany the check or money order.

Procedural Action – Submission Methods

For mail-in submissions, the completed Form 100-ES voucher is sent with a check or money order payable to the “Franchise Tax Board.” The corporation’s California Corporation Number and the tax year should be written on the check for proper application.

Alternatively, the FTB’s Web Pay portal allows for an electronic funds transfer directly from a bank account. To use this system, a representative selects the business payment option on the FTB website, enters the required identification numbers, specifies the payment is for estimated tax, and authorizes the direct debit.

Understanding Underpayment Penalties

An underpayment penalty is triggered if a corporation does not pay enough tax through its installments or fails to pay the required amounts on time. The penalty is calculated using an interest rate, which can change periodically, on the amount of the underpayment for the period it remained unpaid. Corporations can determine the penalty amount by completing Form FTB 5806, Underpayment of Estimated Tax by Corporations.

Certain exceptions can absolve a corporation from the penalty. A corporation in its first year of business that pays the required minimum franchise tax may be exempt. A waiver may also be requested if the underpayment was caused by a change in tax law enacted during the taxable year. The FTB will not assess a penalty if timely payments satisfied a specific exception, such as the annualized income method.