What Is California Form 3805-P and Who Must File It?

California Form 3805-P, “Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts,” is a state-specific tax document for individuals who owe an extra tax on funds taken from certain accounts. This form is separate from federal requirements and addresses financial events like early withdrawals from retirement plans. The form is used to calculate and report these additional taxes to the California Franchise Tax Board (FTB).

Who Must File Form 3805-P

A California taxpayer must file Form 3805-P if they have engaged in certain transactions related to their tax-favored accounts during the year. The primary trigger is receiving an early distribution from a qualified retirement plan before reaching age 59½. These plans include:

• Traditional and Roth IRAs
• 401(k)s
• 403(b)s

The form is necessary if you received a taxable distribution and your federal Form 1099-R shows a distribution code other than 2, 3, or 4 in box 7, which indicate an exception to the federal penalty.

Another situation requiring Form 3805-P is receiving a taxable distribution from certain tax-favored accounts. This applies to Archer Medical Savings Accounts (MSAs) and Health Savings Accounts (HSAs). Similarly, distributions from a Coverdell Education Savings Account (ESA) that are not used for qualified education expenses can also trigger this tax.

The form is also required if you fail to take a Required Minimum Distribution (RMD) from a retirement account. The age for RMDs is 73 for individuals born between 1951 and 1959. For those born in 1960 or later, the RMD age increases to 75. The amount of the RMD that was not withdrawn as required is subject to an additional tax.

Exceptions to the Early Distribution Tax

California law provides several exceptions that allow taxpayers to avoid the additional 2.5% tax on early distributions from qualified retirement plans, and these often align with federal rules. One of the most common exceptions is for distributions made to a taxpayer who has become totally and permanently disabled. To qualify, the individual must be unable to engage in any substantial gainful activity due to a medically determinable physical or mental impairment.

Distributions used for specific life events may also be exempt. For instance, up to $10,000 may be withdrawn penalty-free for a qualified first-time home purchase. The funds must be used to buy, build, or rebuild a first home. Another exception applies to distributions used to pay for qualified higher education expenses for yourself, your spouse, your children, or your grandchildren.

Certain personal hardships also qualify for an exception. If you have unreimbursed medical expenses that exceed 7.5% of your federal Adjusted Gross Income (AGI), the portion of the distribution used to pay those expenses is not subject to the additional tax. A distribution made from a retirement account to a beneficiary after the account owner’s death is also exempt from the early withdrawal tax.

Other situations can also provide relief from the tax. These include distributions made as part of a series of substantially equal periodic payments, distributions made to an alternate payee under a qualified domestic relations order (QDRO), or distributions taken by a qualified military reservist called to active duty. Each of these exceptions has specific criteria that must be met.

Calculating the Additional Tax

Part I of the form deals with the “Tax on Early Distributions,” which is a 2.5% tax. To complete this section, you will need the taxable amount of the early distribution, which is found on your federal Form 1099-R. You enter the total taxable distribution amount on line 1 of Form 3805-P.

If you qualify for one of the exceptions to the early distribution tax, you will report the amount of the distribution that is exempt on line 2. The form instructions provide specific two-digit codes that correspond to each exception. You subtract the exempt amount on line 2 from the total distribution on line 1 to determine the net amount subject to the tax, which is then multiplied by 2.5% (0.025).

Other parts of the form address different accounts. Part II calculates the 2.5% tax on distributions from Coverdell ESAs not used for qualified education expenses. Part III is used for taxable distributions from Archer MSAs, which are subject to a 12.5% tax.

Filing and Reporting Instructions

Once you have calculated the total additional tax on Form 3805-P, you must report this amount on your main California income tax return. For residents, the total is transferred to line 63 of Form 540. For nonresidents or part-year residents, this amount is reported on line 73 of Form 540NR.

When you file your state tax return, you must attach the completed Form 3805-P. If filing a paper return, place the completed Form 3805-P behind your Form 540 or 540NR. If filing electronically, your tax software will generate and attach the form automatically based on the information you provide.

If you are not required to file a regular California income tax return but still owe the tax on Form 3805-P, you must file the form by itself. In this case, complete Form 3805-P, sign it, and mail it to the Franchise Tax Board with a check or money order for the amount of tax owed. The payment should include your social security number and the tax year on the memo line.