California Electronic Payment Requirements and Penalties

California’s electronic payment requirements apply differently depending on which agency collects the tax. The Franchise Tax Board (FTB) requires electronic payment once your income or business entity tax liability crosses a set dollar threshold. The California Department of Tax and Fee Administration (CDTFA) uses a rolling 12-month average to decide who must remit sales, use, and special taxes electronically. The Employment Development Department (EDD) requires every employer to file and pay payroll taxes electronically, with no threshold at all. If you fall under one of these mandates and pay by check anyway, penalties run from 1% to 15% of the amount involved.

FTB Thresholds for Individuals and Business Entities

You become a mandatory electronic payer to the FTB if either of the following happens:

  • You file a return showing a total tax liability over $80,000, or
  • You make a single estimated tax or extension payment over $20,000.

Once you cross either line, every future payment to the FTB must be electronic, regardless of type, amount, or tax year. A $500 estimated payment two years later still has to go through electronic channels. The payment that initially trips the threshold does not itself have to be electronic; the obligation attaches to everything after.

The same thresholds apply to corporations, S corporations, and LLCs classified as S corporations. Total tax liability includes any pass-through entity elective tax that pushes the figure above $80,000.1Franchise Tax Board. S Corporation Pass-Through Entity Elective Tax and Mandatory E-Pay Requirement

One group is carved out: fiduciaries, estates, and trusts are not required to pay the FTB electronically.2Franchise Tax Board. Mandatory E-Pay for Individuals

CDTFA Thresholds for Sales, Use, and Special Taxes

The CDTFA looks at your average monthly tax liability over a rolling 12-month period. Two thresholds apply:

The CDTFA reviews activity annually. A business that drops below the threshold can be removed from the mandate, but one that stays above it remains locked in. If you take over a business already subject to the mandate, you inherit the requirement when the predecessor’s monthly liability met or exceeded the threshold.5Cornell Law Institute. Cal. Code Regs. Tit. 18, Section 4905 – Electronic Funds Transfer

EDD: Every California Employer

The EDD has no dollar threshold. Every California employer, including out-of-state employers with California employees, must file employment tax returns, wage reports, and payroll tax deposits electronically. The same applies to third-party payroll providers who file or pay on an employer’s behalf.6Employment Development Department. E-file and E-pay Mandate for Employers

Employers who genuinely cannot comply can request a waiver using Form DE 1245W. Approved waivers run for one year from the quarter the request is received and must be renewed each year the hardship continues.

Enrollment runs through e-Services for Business. Requests for a new employer payroll tax account number can take up to ten business days, and more for accounts with tax exemptions or other complications.7Employment Development Department. e-Services for Business Starting the week before a deadline is cutting it too close.

How to Pay Electronically

The mandate specifies the channel category, not a single product. You have options.

FTB Payment Methods

Four methods satisfy the FTB mandate: bank account payments through Web Pay, electronic funds withdrawal on an e-filed return, credit card, and pay-by-phone.2Franchise Tax Board. Mandatory E-Pay for Individuals Credit card payments carry a 2.3% service fee charged by the third-party processor.8Franchise Tax Board. Pay by Credit Card That is worth knowing before you consider putting a six-figure tax bill on a card.

Web Pay submissions must be completed by 3:00 PM Pacific Time on or before the due date to be considered timely.9Franchise Tax Board. Pay-by-Phone Option for Individuals Anything after the cutoff posts the next business day. Web Pay also lets you schedule payments up to one year in advance.10Franchise Tax Board. 2025 Instructions for Form 540-ES Estimated Tax for Individuals Changing a scheduled payment means canceling and resubmitting, and cancellations must happen at least two business days before the scheduled date.11Franchise Tax Board. Help with Bank Account Payments (Web Pay)

CDTFA Payment Methods

The CDTFA accepts ACH Debit (initiated through its online portal), ACH Credit (initiated through your bank), and credit card through its processor, Fiserv, at the same 2.3% service fee.12California Department of Tax and Fee Administration. Credit Card Payment Program For ACH Credit, your bank has to push the funds in time to settle into the state’s account no later than one banking day after the due date.13California Department of Tax and Fee Administration. Notification to Pay by Electronic Funds Transfer Allow two or three business days for your bank’s ACH processing before the deadline.

Penalties for Paying the Wrong Way

Each agency has its own penalty structure, and some hit harder than people expect.

FTB

Individuals who are required to pay electronically but send a check owe 1% of the amount that should have been paid electronically. For corporations and business entities, the figure is 10% of the amount not paid electronically.14Franchise Tax Board. Common Penalties and Fees On a $100,000 corporate payment sent by check, that is a $10,000 penalty for picking the wrong channel, even if the payment itself arrived on time.

CDTFA

Mandatory EFT participants who remit sales and use tax by check or another non-electronic method owe 10% of the amount incorrectly remitted. For prepayments, the figure is 6% of the prepayment amount. The 10% penalty on the tax amount (excluding prepayments) also applies if a mandatory participant files the return late, even where the tax itself was paid on time by EFT.15California Department of Tax and Fee Administration. Sales and Use Tax Law – Section 6479.3

EDD

The EDD charges penalties per item for paper submissions:

  • Tax returns (DE 9, DE 3D, DE 3HW): $50 per return
  • Wage reports (DE 9C, DE 3BHW): $20 per wage item
  • Payments (DE 88): 15% of the amount due

The penalty applies even to a paper return reporting zero wages.6Employment Development Department. E-file and E-pay Mandate for Employers

Returned Electronic Payments

A payment that your bank rejects (insufficient funds, wrong account number) triggers its own penalty. The FTB charges 2% of the payment amount if it was $1,250 or more, or $25 or the payment amount (whichever is less) if under $1,250.14Franchise Tax Board. Common Penalties and Fees Verifying the routing and account numbers before you hit submit avoids this entirely.

Waivers and Reasonable Cause

All three agencies have waiver processes, and none of them are automatic. You have to request relief and show the failure was due to reasonable cause and not willful neglect.

For the FTB, the standard path is Form FTB 4107, the Mandatory e-Pay Waiver Request. Reasonable cause generally means ordinary business care and prudence that still could not produce compliance, such as a bank system outage on the due date. The FTB may also waive the penalty if it decides the payments that triggered the threshold were not representative of your typical liability.16Franchise Tax Board. FTB 1024 – Penalty Reference Chart California does not offer first-time abatement based on a clean filing history the way the IRS does.17Franchise Tax Board. Reasonable Cause – Individual and Fiduciary Claim for Refund

EDD waivers (Form DE 1245W) are available for employers who truly cannot file or pay electronically, but they only cover one year and have to be renewed.

Not knowing about the requirement is not reasonable cause. When an agency notifies you that you have become a mandatory electronic payer, treat it as a hard deadline to get your electronic payment setup finished before the next filing period. Save every confirmation number and transaction receipt; those are your proof of timely compliance if a payment is later disputed or misapplied.