California Penalty Waiver for Underpayment of 2024 State Tax

[jc1006]

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!

[Bsch4477]

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]

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 

[jc1006]

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!

[jc1006]

Thanks for the response.  Please see my response to fanfare below.  My response identified 3 reasons for being exempt from penalty that included the two conditions you stated, plus a third that my example falls under.  I just want to make sure I am understanding this correctly.  Thanks again.

[Bsch4477]

Are you confusing tax liability with what you paid or didn’t have to pay because you got a refund?  Look at line 24 on your 1040. That is your tax liability.