How to Pay Taxes in California: A Complete Overview of Your Options

Paying taxes in California is a responsibility for residents and businesses, ensuring funding for state services and infrastructure. Understanding the process can save time and prevent penalties.

Determining State Tax Obligations

Tax obligations in California depend on the type of taxpayer and the taxes applicable to them. For individuals, the primary concern is the state income tax, which is progressive, with rates ranging from 1% to 13.3% as of 2024. This rate applies to taxable income after deductions and credits. Businesses face corporate tax at 8.84% for most corporations and a minimum franchise tax of $800 annually for LLCs, S corporations, and partnerships.

Residency status plays a significant role in determining tax obligations. California residents are taxed on all income, while non-residents are taxed only on California-sourced income. Part-year residents must file for the period they were residents. The Franchise Tax Board (FTB) provides guidelines for determining residency, which can be complex for those with ties to multiple states.

Other taxes include sales and use tax, property tax, and excise taxes on specific goods. Businesses must register with the California Department of Tax and Fee Administration (CDTFA) to collect and remit sales tax, which averages around 7.25% statewide but varies by locality. Property taxes are assessed by county assessors based on the property’s value, with a base rate of 1% plus any voter-approved local taxes.

Calculating the Amount Due

To calculate taxes, individuals and businesses must gather financial records such as W-2s, 1099s, and documentation of deductions or credits. Individuals calculate adjusted gross income (AGI) by summing income sources and subtracting adjustments. Taxable income is determined by subtracting the standard deduction or itemized deductions.

Businesses calculate taxable income by subtracting business expenses from gross receipts and applying the corporate tax rate. Specific deductions or credits, such as those for research and development or energy efficiency, may reduce tax liability.

Estimated tax payments may be required throughout the year if total tax liability exceeds $500 for individuals or $800 for businesses. The California Franchise Tax Board provides guidance on calculating these quarterly payments, which helps avoid penalties.

Payment Methods

Taxpayers can choose from several payment methods based on their preference.

Online Submission

The Franchise Tax Board’s (FTB) website offers a convenient option for electronic payments. Taxpayers can use the Web Pay service to schedule or make immediate payments via electronic funds transfer (EFT) or credit card. Note that credit card payments may incur a convenience fee.

Mailed Payment

For those who prefer traditional methods, payments can be mailed to the FTB. Include a check or money order with the appropriate payment voucher and ensure it is postmarked by the due date to avoid late fees. Include the taxpayer’s social security number or business entity identification number on the payment. Using certified mail provides proof of mailing.

In-Person Payment

In-person payments can be made at designated FTB field offices. Bring relevant documentation, such as a copy of the tax return or FTB correspondence. Payments can be made via check, money order, or cash. Cash payments may require an appointment.

Extensions and Late Payment Consequences

California grants automatic six-month extensions for individuals to file returns if at least 90% of the tax liability is paid by the original deadline. However, this extension applies only to filing; taxes owed must still be paid by April 15 to avoid penalties and interest.

For businesses, extensions vary. Corporations and LLCs can request a seven-month extension, while partnerships and S corporations may qualify for six months. Submit the appropriate forms and ensure estimated taxes are paid to avoid penalties. Late payments result in additional costs.

Installment Plans

Taxpayers unable to pay their full tax liability by the due date can opt for installment plans through the FTB. Individuals with balances of $25,000 or less can qualify for a plan if the amount can be paid within 60 months. Applications can be submitted online. Businesses may need to contact the FTB directly to arrange a plan. A one-time setup fee of $34 applies, though it may be reduced or waived for low-income taxpayers.

Interest accrues on unpaid balances at a rate of 7% per year. Taxpayers should carefully assess their finances before committing to a plan, as missed payments can result in cancellation and collection actions.

Refund or Overpayment Adjustments

When taxpayers overpay, the FTB issues refunds or applies the excess to future liabilities. Refunds are typically processed within two to three weeks for electronically filed returns and up to four months for paper returns. Taxpayers can track refund status using the FTB’s “Where’s My Refund?” tool.

Alternatively, overpayments can be applied to future tax liabilities, an option indicated on the tax return. This is particularly helpful for businesses making quarterly estimated payments. Overpayments applied to future liabilities do not accrue interest, unlike delayed refunds issued after 45 days. Accurate calculations during filing can reduce the likelihood of overpayments.