Look Out For California Electronic Payments Requirement
Mandatory E-pay Penalty Begins 2011
Beginning January 1, 2011, a MANDATORY electronic payment requirement kicks in for certain California individual taxpayers. Electronic payments are required once a person:
- Makes an estimate tax or extension payment (by check or electronic method) of more than $20,000.
- Files an original tax return with a tax liability over $80,000.
This should not be a surprise to anybody as this was supposed to happen two years ago, and got postponed again and again. Now California says no more grace periods.
The penalty is equal to 1 percent of the amount paid, unless failure to pay was for reasonable cause and not willful neglect. I am not being flippant when I say that it is unlikely California will find any excuse reasonable. California is looking for reasons to collect revenue.
If you make a payment or file a return meeting the mandatory requirement, The Franchise Tax Board will send you an FTB 4106 MEO, Mandatory e-pay Participation Notice, advising you that all future payments must be remitted electronically. NOTE: If you do not receive notification from FTB, you are still required to remit payments electronically once you meet either of the above thresholds.
Tax preparation software may also remind you to e-pay, BUT, if your tax preparation software generates paper Form 540-ES vouchers when you meet the mandatory e-pay threshold, you must still pay electronically.
Again, once you meet the mandatory e-pay threshold, you are required to make all payments thereafter electronically, regardless of the amount, type, or taxable year. For example: You make your fourth quarter 2010 estimated tax payment of $25,000 on January 15, 2011 electronically because you had an unusually big gain in December of 2010. Any payment made after that (for example, a bill payment from a previous year or your tax due on April 15, or any 2011 estimated tax payment) must be made electronically even if they drop down to $1.
One client of mine was worried about the “big brother” aspect of this. “Won’t this give the FTB direct access to my account?” he asked. Sure it will, but they could also just copy the numbers off your check, and when you think about it, even checks are all scanned and turned into electronic payments anyway.
To find out how to pay electronically, see the FTB’s Webpay page at http://www.ftb.ca.gov/online/webpay/index.asp.