Self-employed individuals in California are required to make quarterly estimated tax payments. This article will cover everything you need to know about California’s estimated tax payments, including minimum taxable income, due dates, and applicable penalties for failing to meet your tax liability.
Let’s get to it!
What is California’s Estimated Tax Payment?
Estimated tax is the amount of tax you expect to owe for the tax year. In California, if you are self-employed, you will have to file and submit your own estimated payments for the year.
This estimated tax is then usually paid on a quarterly basis. It consists of the current year’s tax minus the credits that you plan to take as well as the tax that you expect to have withheld.
Who pays estimated taxes?
Mainly people in self-employment in California are required to pay estimated taxes. If you are a small business owner, independent contractor, or freelancer, then you will likely have to file your quarterly estimated tax returns. These are essentially people who do not have their taxes withheld by employers.
How to pay California’s estimated tax payments
California allows taxpayers to pay estimated taxes in four installments. The first thing you need to do is calculate the total tax due for the current year. The payable tax amount is either 90% of the expected current year’s tax or 100% of the prior year’s tax – whichever value is smaller.
Once you know how much tax is due, you must pay in quarterly installments as follows:
1st installment – 30% of the total (Due April 15)
2nd installment – 40% of the total (Due June 15)
3rd installment – none (Due September 15)
4th installment – 30% of the total (Due January 15 the following year)
The amount of tax due in the third installment is zero, which gives you a chance to get current on your tax payments if you are not already.
Remember, if you just set up a new business and haven’t generated any revenue yet, you don’t have to pay any estimated tax until your business starts earning.
The California Franchise Tax Board (FTB) allows four different ways of making electronic tax payments:
- Web Pay
- Electronic funds withdrawal (EFW) for those using tax preparation software
- Credit card
- By phone through the state’s electronic funds transfer for corporations (EFT) vendor
In case you don’t meet the FTB’s e-pay threshold, you may submit your state tax by mail to the Franchise Tax Board.
- State of California – Franchise Tax Board | Payment Options
- State of California – Franchise Tax Board | If You Cannot Pay
What is the underpayment penalty in California?
A 3% underpayment penalty will be imposed if you do not pay at least 100% of the preceding year’s tax or 90% of the current year’s estimate (110% if you are a high-income taxpayer). Additionally, of course, you still have to pay the full amount of taxes due (unpaid tax).
Shoeboxed can make your tax time easier
Keeping receipts organized and safe is vital during the tax season as they are your concrete evidence for any tax deductions you claim.
If you’re tired of spending hours and hours collecting and categorizing receipts by yourself, we’re here to tell you there’s a super easy alternative. It’s Shoeboxed.
Shoeboxed is a receipt management application that turns your receipts and business documents into a digital format in just one click by taking a picture straight from your smartphone or scanning a pdf. It automatically extracts, categorizes, and human-verifies important data from your receipts so that you can go over and check your records anytime with ease. Shoeboxed ensures you will always have your receipts securely stored and ready for tax purposes.Access your Shoeboxed account from your web browser or smartphone app. Stay audit-ready with Shoeboxed for FREE now!