Common CA Back Tax Penalties & Penalty Abatement (FTB)

If you file or pay late, you will incur penalties from the FTB. However, if you had reasonable cause, the FTB may give you a penalty waiver, but to qualify, you must first pay the tax in full. Individuals can also get one-time abatement for penalties. This post outlines the penalties the FTB applies to late returns and payments. Then, it explains how to request penalty abatement.

Key takeaways

• Late filing penalty for individuals and businesses - 5% of the tax due per month.
• Late filing penalty for partnerships, S-corps, and LLCs taxed as partnerships - $18 per partner/shareholder per month, up to 12 months.
• Late payment penalty - One-time penalty of 5% of the tax due plus 0.5% per month.
• Interest - Applies to late payments and penalties.
• Penalty abatement - Available if you have reasonable cause, also available once to individual taxpayers.
• Interest abatement - Usually only available if interest was incurred due to IRS or FTB errors

Late Filing Penalty

Individuals and businesses that don't file by the due date or extended due date if you request an extension, the FTB will assess a penalty of 5% of the tax due, after applying timely payments and credits. The maximum late filing penalty is 25% of the tax due (again, that's after applying any payments or credits made timely). The minimum late file penalty is $135 or 100% of the tax due if you owe $540 or less, after applying timely payments and credits, whichever is less.

The FTB calculates the penalty from the original due date of the return. For example, say that you owe $20,000 in income tax for tax year 2024 but you paid $15,000 in withholding throughout the year. You requested an extension but missed the October 15, 2025 filing deadline. When you file six months later, the FTB will backdate the failure-to-file penalty to October 15 and they will assess it based on the $5000 that was not paid on the original due date. This penalty will be $250 per month and because you're six months late, it will have likely reached the maximum amount of $1250 (25% of your unpaid balance).

The late filing penalty for S-corps, parentships, and LLCs taxed like partnerships is $18 per shareholder or partner per month for up to 12 months. For example, if you file two months late and have three partners, the late filing penalty is $18 x 2 x 3 or $108.

Late Payment Penalty

The late payment penalty is 5% of the unpaid tax, plus 0.5% of the unpaid tax for each month (or part of a month) that the delinquent tax goes unpaid. The maximum penalty is 25% of the tax not paid.

For example, say that you file on time, but your return shows that you owe $10,000. You will incur a penalty of $500 (5% of the tax due) and then monthly, you will incur an additional penalty of $50 (0.5% of the tax due). If you don't pay, the late payment penalty can get up to $1250 (25% of your tax due).

Interest on Unpaid Taxes and Penalties

Interest accrues on unpaid taxes from the original due date of the return until the day the taxpayer pays in full. Moreover, interest accrues on penalties from the effective date of the tax penalty until the time the taxpayer pays in full. The interest rate adjusts twice every year. It is 8% as of the first half of 2025.

CA FTB Penalty Abatement for Reasonable Cause

The FTB may waive penalties if they were incurred due to reasonable cause. Reasonable cause is when you are unable to comply with tax obligations even though you exercised ordinary caution. For example, if death or a natural disaster prevented you from paying or filing on time, you may qualify for a penalty waiver. 

To apply for penalty abatement, file Form 2917A. This form requests basic info about you and the penalties incurred. It also requires a written explanation of why you should qualify for reasonable cause penalty relief. Note that you must pay the tax and penalties in full before you apply for penalty abatement.

The FTB will only consider your request if it's filed by the applicable statute of limitations which is:

(a) 4 years after the original tax return date,
(b) 4 years after the date of a timely filed return, or
(c) 1 year from the date of overpayment.

Address to Request Penalty Abatement

The taxpayer should submit the completed and signed penalty request form to:

Franchise Tax Board
PO Box 942840
Sacramento, CA 94240-0040.

The FTB will usually make a determination within six weeks. The taxpayer cannot appeal penalty abatement request determinations.

Examples of Reasonable Cause

The FTB provides a few examples of what they consider and do not consider reasonable cause:

• Reasonable Cause
  • In some cases, illness or personal injury
  • Relying on improper advice from a tax professional as to a matter of tax law
  • In some cases, for the late payment penalty, the taxpayer’s financial inability to pay the taxes (case by case determinations)
• Not Reasonable Cause
  • Ignorance of a filing requirement or due date
  • Reliance on an agent, such as a tax attorney or CPA, to file a return or sent in payment on the taxpayer’s behalf, or to reply to a request for information
  • Generally, lack of necessary information or documents, whether or not lost, lacking, inaccurate, or cumbersome to obtain
  • Stress from business affairs or work pressures
  • The complexity of the tax law

In all circumstances, the FTB maintains a presumption of correctness when assessing penalties. Therefore, the burden of proof is on the taxpayer to show that reasonable cause exists for their specific set of facts. As a result, the taxpayer must provide credible and competent evidence to support their claim of reasonable cause and to overcome the presumption of correctness of the penalties.

One-Time Penalty Abatement

As of 2022, the FTB also offers one-time penalty abatement. Individuals can apply for abatement of failure to pay and failure to file penalties. If you don't have reasonable cause, you can get relief from penalties just once in your lifetime. To qualify, you must be up to date on filing requirements. You must also pay the tax in full or set up an installment agreement and be current on your payments.

To apply, file Form 2918. The form requests info about yourself and the penalties. It does not require a written explanation.

Interest Abatement

California law permits interest abatement in specific situations. It is not to be confused with reasonable cause relief, which is available for penalty abatements. Reasonable cause relief is not available for an interest abatement request. For a taxpayer to be granted interest abatement by the FTB one of the following circumstances must exist:

• Erroneous refund
• Reliance on formal written advice
• Disaster Loss
• FTB/IRS error or delay

Taxpayers can request interest abatement for both paid and unpaid interest. However, if the taxpayer has already paid the interest, the taxpayer must submit the request before the applicable statute of limitations period (as discussed above for penalty abatement).

To request interest abatement, file Form 3701. The form asks for basic info about you, the interest, and the tax period. Then, it requires you to write an explanation of why you should qualify for interest abatement.

FAQs About Penalty and Interest Abatement in California

Does the FTB offer first-time penalty abatement?

No, the FTB does not offer first-time penalty abatement. However, the agency offers one-time penalty abatement. In contrast, the IRS will abate penalties for "first-time offenders" which generally means anyone who hasn't incurred a penalty for the last three filing periods.

What is the difference between one-time and first-time penalty abatement?

You can typically get IRS first-time abatement every four years. In contrast, you can only get FTB one-time abatement once in your lifetime.

What if you disagree with the penalty?

If you believe a penalty was assessed in error, you can dispute it. First, you must pay it in full. Then, send a copy of the penalty notice, documents to support that it was assessed in error, and a request for a refund.

Why did I receive a penalty when I requested a filing extension?

The filing extension gives you more time to file. Your payment is still due on the original due date. For example, if you request an extension, your tax return is not due until October 15, but your payment is still due on April 15. If you pay and file on October 15, you will incur a penalty for late payment but not for filing late.

Can you get an abatement for CDTFA penalties or interest?

Yes, you may qualify for abatement if you incurred penalties from the CDTFA, due to reasonable cause, if you incurred interest or penalties due to IRS/FTB errors or delays, or if you incurred penalties while in a California disaster area. To apply, file Form CDTFA-735.

Can you get abatement for EDD penalties?

If you incur penalties for submitting late payroll taxes or returns to the Employment Development Department, you may qualify for abatement if you can prove reasonable cause.

How to Get Help With Penalty Abatement

For help with a Franchise Tax Board penalty issue, contact a licensed tax professional with experience in resolving Franchise Tax Board problems. Use the form below to start your search or check out these links for more listings.

• California Enrolled Agents
• California CPAs
• California Attorneys
• Tax pros with FTB experience

Once on a directory page, narrow down your search by filtering for FTB tax problems such as penalties and FTB solutions such as penalty abatement.

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.