CA Franchise Tax Board Installment Agreement Overview
Like the IRS and many states, California’s Franchise Tax Board offers taxpayers many options to pay their taxes, including the ability to pay taxes owed overtime. To illustrate, the State of California Franchise Tax Board will accept Installment Agreements for up to 60 months. However, in order for a taxpayer to be eligible for an Installment Agreement all of the following must be true:
- The liabilities must not exceed $25,000,
- The taxpayer must be able to pay off the tax debt within 60 months (five years),
- The taxpayer must file all past-due tax returns,
- The taxpayer must have a history of compliance with state tax regulations, and
- The taxpayer must not already be in an Installment Agreement.
Taxpayers can set up Installment Agreements online (https://www.ftb.ca.gov/online/eIA/Apply_Online.asp) or via mail (https://www.ftb.ca.gov/forms/misc/3567.pdf). Setting up a payment plan with the California FTB can significantly reduce future tax penalties, reduce the chance of getting a tax lien placed, prevent tax levies, and also release tax levies.
If you don't meet the above criteria, you may still be able to set up a payment plan, but you will need to file FTB Form 3561. This is a financial statement, and it allows the FTB to look at your situation and decide if you should get a payment plan even though you owe over $25,000, need extra time to pay, or have a history of non-compliance.
CA FTB Installment Agreement Conditions
The taxpayer must agree to the following Taxpayer Installment Agreement Conditions while in an Installment Agreement:
- Pay a $34 set-up fee that the FTB adds to the balance due
- Make monthly payments until the taxpayer pays the entire tax bill in full
- Pay by automatic withdrawal from a bank account
- Make sure to keep enough funds in the bank account to make the monthly payment
- File all future income tax returns on time
- Pay all future income taxes on time
- Adjust any W-4 and DE-4 forms so that the taxpayer will not owe taxes in the future
- Make all estimated tax payments, if required
Additionally, if the tax liability exceeds $10,000, or the Installment Agreement period will exceed 36 months, the taxpayer must certify that they have a financial hardship. Moreover, Installment Agreements where the taxpayer is required to confirm a financial hardship are subject to periodic review. In other words, it means that the taxpayer may be required to update financial information periodically (generally each year), and their monthly payment figure may be adjusted accordingly, depending on their current financial situation.
Finally, the taxpayer will still be subject to all of the FTB’s offset programs regarding applying state tax refunds to offset current state tax liabilities, or, in some cases, to be sent to the IRS to offset federal tax liabilities.
FTB Acceptance Determinations
The FTB states that they make acceptance determinations based upon the taxpayer’s current ability to pay the liability and their compliance record.
If the FTB accepts the Installment Agreement request, the FTB will send a notice to the taxpayer confirming the monthly payment amount and the due date for each monthly payment. However, if the taxpayer fails to maintain compliance with the conditions stated above, the FTB reserves the right to terminate the Installment Agreement. Before the FTB terminates an Installment Agreement, they will send a notice to the taxpayer 30 days before termination. The FTB notice will state the reason(s) for termination and provide instructions regarding the taxpayer’s rights.
What Is FTB Tax Compliance?
To be considered compliant with California state tax regulations, you must do the following:
- File required state tax returns on time.
- Pay tax debts on time and in full.
You also must follow through on requirements related to your installment plan. If you agree and then fail to do the following, the FTB will also consider you to be non-compliant:
- Making installment agreement payments as scheduled.
- Providing financial statements if requested.
- Submitting documents related to the collection or cancellation of tax.
To get a payment plan, you must be compliant, but you must also stay compliant to keep your plan. If you fail to file taxes or make payments as required, the FTB can rescind your payment agreement.
If the FTB Rejects the Installment Agreement
If the FTB rejects the Installment Agreement request, the taxpayer can file for an independent administrative review. As a result, the taxpayer needs to send the request in writing within 30 days from the date of the rejection letter. The taxpayer should mail it to:
Executive and Advocate Services MS A381
Franchise Tax Aboard
PO Box 157
Rancho Cordova, CA 95741
If You Do You Not Qualify
If you do not qualify for an installment agreement, taxpayers may want to consider working with a tax professional who has experience with Franchise Tax Board tax cases. There are other options for taxpayers. Above all, a licensed tax professional can review their financial situation, tax situation, and determine all options available.
Help With California Installment Agreement and TaxCure
At TaxCure, we have a large network of tax professionals with a variety of specialties. We made it easy for taxpayers to find the best professional to help with the particular tax agency problem they are experiencing. You can view the top-rated professionals to help with a California installment agreement. Or browse top tax professionals by license type below that are located in California.
Disclaimer: This article is not legal or tax advice. This article should not be used as a substitute for the advice of a competent attorney or a licensed tax professional.