Unexpected CA tax refund

[Ready]

I went the entire year without making quarterly tax payments to the CA Franchise Tax Board. I'm retired so I knew the total amount due wouldn't be much. Turbotax assessed my penalty at $40 so I included that in my payment.

Today the FTB sent me a refund check for $40, which shows up as a refund of the penalty. There was no explanation of why they issued the refund. I poked around the CA FTB website and I couldn't find any explanation of it.

Any guess what might have happened here?

 

[Chuckanut]

Is there a safe harbor condition in the California income tax code that is similar to the Federal laws?

The tax software should catch that, but as many of know, software is sometimes buggy.

Below is an explanation for the Federal safe harbor rule:

https://www.hrblock.com/tax-center/irs/tax-responsibilities/avoiding-underpayment-tax-penalty/

Generally, an underpayment penalty can be avoided if you use the safe harbor rule for payments described below. The IRS will not charge you an underpayment penalty if:

You pay at least 90% of the tax you owe for the current year, or 100% of the tax you owed for the previous tax year, or
You owe less than $1,000 in tax after subtracting withholdings and credits
This rule is altered slightly for high-income taxpayers. If the Adjusted Gross Income (AGI) on your previous year’s return is over $150,000 (over $75,000 if you are married filing separately), you must pay the lower of 90% of the tax shown on the current year’s return or 110% of the tax shown on the return for the previous year.

 

[statsman]

Is there a safe harbor condition in the California income tax code that is similar to the Federal laws?

I think there is, but it sounds like TurboTax computed a penalty for the state.

 

[Ready]

Is there a safe harbor condition in the California income tax code that is similar to the Federal laws?

The tax software should catch that, but as many of know, software is sometimes buggy.

Below is an explanation for the Federal safe harbor rule:

https://www.hrblock.com/tax-center/irs/tax-responsibilities/avoiding-underpayment-tax-penalty/

This is the code:

https://www.ftb.ca.gov/pay/penalties-and-interest/index.html

Which would indicate I owed a penalty for not making enough quarterly estimated tax payments (I paid zero). If there is an exception I would think TurboTax would have known about it.

 

[cathy63]

I went the entire year without making quarterly tax payments to the CA Franchise Tax Board. I'm retired so I knew the total amount due wouldn't be much. Turbotax assessed my penalty at $40 so I included that in my payment.

Today the FTB sent me a refund check for $40, which shows up as a refund of the penalty. There was no explanation of why they issued the refund. I poked around the CA FTB website and I couldn't find any explanation of it.

Any guess what might have happened here?

Here are my guesses:

- Due to the 2023 winter storm disaster declarations, the first two 2023 estimated payments for most Californians were due on Nov 16 last year, so even if you missed the April and June payments (CA doesn't have a Sept payment) and just paid your tax when you submitted your 2023 return, you would have been at most 4 months late. If TTax calculated the penalty using the original dates it would have been too high and you would be due a refund.

- If your tax liability on line 64 of your Form CA-540 is less than $500, there is no penalty. I think TTax does know about that and shouldn't have calculated a penalty, so this is probably not it.

- The FTB might have granted you a one-time abatement. You used to have to ask for that, but maybe they're doing it automatically now, or maybe TTax checked a box requesting it on your behalf.

- If you live in San Diego County, your 2023 tax return is not due until June 17 due to the 2024 winter storm disaster declaration, so that might also affect the penalty calculations.

 

[Ready]

Here are my guesses:

- Due to the 2023 winter storm disaster declarations, the first two 2023 estimated payments for most Californians were due on Nov 16 last year, so even if you missed the April and June payments (CA doesn't have a Sept payment) and just paid your tax when you submitted your 2023 return, you would have been at most 4 months late. If TTax calculated the penalty using the original dates it would have been too high and you would be due a refund.

- If your tax liability on line 64 of your Form CA-540 is less than $500, there is no penalty. I think TTax does know about that and shouldn't have calculated a penalty, so this is probably not it.

- The FTB might have granted you a one-time abatement. You used to have to ask for that, but maybe they're doing it automatically now, or maybe TTax checked a box requesting it on your behalf.

- If you live in San Diego County, your 2023 tax return is not due until June 17 due to the 2024 winter storm disaster declaration, so that might also affect the penalty calculations.

All good possibilities. Is there anywhere I can look to get an explanation of the refund? There was nothing on the check and nothing on the FTB website? Is it common for the state to issue a refund with no explanation?

 

[cathy63]

All good possibilities. Is there anywhere I can look to get an explanation of the refund? There was nothing on the check and nothing on the FTB website? Is it common for the state to issue a refund with no explanation?

Letters usually come separately from the checks and may arrive a couple of weeks later.

You can create an account at ftb.ca.gov and see if there's anything in the notices section. There is a form letter for "we changed your tax return", but I don't know if "you didn't owe a penalty" is one of the reasons they send it or not.

If you are married, create accounts for both you and your spouse and check both. I think the notice would be in the primary taxpayer's account rather than the spouse's, but you never know.

 

[JCH10400]

Was your 2022 state tax amount entered correctly in the 2023 program? If not, the program doesn't have the information it needs to calculate the safe harbor and will include a penalty that may not apply.

 

[Sunset]

Just take the $$$ and run...

Probably a letter will show up in a week or two to explain it.