California Penalty Waiver for Underpayment of 2024 State Tax

Forum|Forum|1 year ago
May 22, 2024
1 reply
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Hello,

For the 2023 tax year, my California state tax liability was less than my withholdings on my W2 (therefore, I received a state refund and did not pay any estimated tax in 2023.) For 2024, would I therefore be exempt from having to pay a penalty if I underpay my 2024 California state tax? (Note, I am basing this on CA Form 5805 for the 2023 tax year and want to make sure I am understanding this correctly and that it still applies to the 2024 tax year).

Thank you!

Not A Product Question

Bsch4477

Employee

Generally, taxpayers can avoid paying California penalties for underpayment of estimated taxes by paying the lesser of the following:

1. 90% of the current year's tax
or
2. 100% of the preceeding year's tax

But high income taxpayers must meet some different standards as listed below:

1. When current year AGI exceeds $150,000 ($75,000 if married filing separately) but is less than $1,000,000 ($500,000 if married filing separately), they must pay in 110% of the prior year's amount to avoid the penalty.

fanfare

Employee

No.

Being in good standing on your 2023 return does not protect you from penalty if you don't comply

with 2024 withholding and estimated tax requirements.

@jc1006

jc1006Author

Thanks for the response. But, I am seeing that CA Form 5805 for tax year 2023 which is titled Underpayment of Estimated Tax by Individuals and Fiduciaries, states the following:

If you meet any of the following conditions, you do not owe a penalty for underpayment of estimated tax. Do not complete or file this form if:

• The amount of your tax liability (not including tax on lump-sum distributions and accumulation distribution of trusts) less credits (including the withholding credit) but not including estimated tax payments for either 2022 or 2023 was less than $500 (or less than $250 if married/RDP filing a separate return).

• Your 2022 return was for a full 12 months (or would have been if you were required to file) and you did not have any tax liability on that return.

• The amount of your withholding plus your estimated tax payments, if paid in the required installments, is at least 90% of the tax shown on your 2023 return or 100% of the tax shown on your 2022 return (110% if California adjusted gross income (AGI) was more than $150,000 or $75,000 if married/RDP filing a separate return) and you are not using the annualized income installment method. Taxpayers with California AGI equal to or greater than $1,000,000 (or $500,000 if married/RDP filing a separate return) must use the tax shown on their 2023 tax return if they do not meet one of the two conditions above.

I believe the previous response talked about the 2nd and 3rd bullet, but I only will fall under the first bullet. So aren't I exempt from any penalties?

Thanks again!