California Differences - Installment Agreements
California also provides installment agreements. The agreement terms are generally the same as the Federal with the following differences:
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CA requestors use Form 3567, filed separately from the tax return, or apply online for balances of $25,000 or less that will be paid in full in 60 months. The payment period for a business is usually 12 months.
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There is no specified payment formula (except for online requests) - proposed payment amounts and duration are at the discretion of the FTB.
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Prior to 2024, if the tax liability owed exceeded $10,000, or the installment agreement period for payment exceeded 36 months, or both, then the taxpayer had to certify that he or she had a financial hardship. (In cases of financial hardship, installment agreements are subject to periodic review.)
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Effective January 1, 2024, AB 1765 requires that the FTB must enter into an installment agreement if an individual’s aggregate liability is not more than $25,000, with a pay-back period of 5 years (60 months). In addition, failure to pay any tax during any of the preceding five taxable years will no longer be a bar to an agreement; and failure to satisfy the terms of an installment agreement, rather than simply entering an installment agreement, during any of the preceding five taxable years will bar a subsequent agreement.
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Under AB 1765, under certain conditions, the FTB may add a new liability incurred during the five-year payback period to the existing installment agreement.
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Also, for installment agreements entered into after 2023, the FTB may alter, modify, or terminate an installment agreement if any of the following occur:
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Information that the taxpayer provided to the FTB before the agreement was entered into was inaccurate or incomplete;
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The FTB determines that the collection of any liability to which an agreement relates is in jeopardy;
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The FTB determines that the financial condition of a taxpayer with whom the FTB has entered into an agreement has significantly changed;
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The taxpayer fails to make an installment payment in a timely manner;
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The taxpayer does not file a required tax return or pay any other liability at the time that the liability is due; or
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The taxpayer does not provide a financial condition update upon the FTB’s request.
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Employees must confirm that the withholding rates for Forms DE-4 and W-4 on file with their employer is correct, or if incorrect, take steps to change the forms.
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The taxpayer cannot be subject to a current wage garnishment.
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There is a $34 charge for setting up an installment agreement for an individual, $50 for a business.
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Changes in installment amount can be requested by calling (800) 689-4776.
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If the taxpayer is required to make electronic payments under the state’s $20,000/$80,000 rule (see chapter 10.03), installment agreement payments must also be made electronically. A taxpayer who is either required to, or wants to, pay by automatic funds withdrawal from their bank account needs to complete the EFT authorization on page 3 of Form 3567. If not subject to the mandatory e-pay requirement, installment payments can be made using Web Pay on the FTB’s web site or by check or money order. For the latter method, the taxpayer should write their FTB account number on the check or money order.
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A business that needs to request an installment payment plan should call the FTB at (888) 635-0494 to make arrangements.
Form FTB 3561PC
The FTB developed FTB 3561PC, Financial Statement (rev. 2-2018), to be used when required to provide current financial information necessary to help the FTB to determine how a taxpayer can satisfy an outstanding tax liability. If the taxpayer submitted an IRS Form 433-A or 433-F, dated within the previous 12 months, to the IRS, that form may be used in lieu of the FTB 3561PC.
Generally, a taxpayer will be required to complete a Financial Statement under the following circumstances (FTB Tax News, May 2018):
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When the total balance is greater than $25,000; or
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An Instalment Agreement will not pay the debt in full within 60 months; or
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Taxpayer claims they do not have the ability to pay (financial hardship); or
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To return/release of assets seized by Warrant; or
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The taxpayer has a demonstrated history of non-compliance.