Tax News October 2023

Separate your Tax Payments this Filing Season

As we approach October 16, 2023, the California Franchise Tax Board reminds you to submit separate tax payments covering two tax years to avoid unintended notices, penalties, and potential erroneous refunds for your clients. 

The disaster declarations from the winter storms extended the due date for taxpayers whose principal residence or place of business is in one of the counties identified as a disaster area. The extension covers two tax years for multiple personal and business entity tax payments. Personal Income Tax (PIT) payments should be made separate from Business Entity (BE) tax payments, and from Pass-Through Entity (PTE) elective payments. However, PIT payments and PIT quarterly estimated tax payments for the same tax year can be paid as one payment. For example, a PIT tax year 2022 estimated tax payment that was otherwise due on January 15, 2023, and a PIT 2022 tax payment that was otherwise due on April 15, 2023, could be paid together as one payment within the extended due date. Also, BE quarterly estimated tax payments for the same tax year may be paid as one payment.

Taxpayers may use Web Pay by logging into their MyFTB account and clicking "Make a Payment" under Web Pay. When using Web Pay, taxpayers must select the appropriate payment type and tax year. Electronic payments are required if your client is an individual or corporation and either:  

• makes an estimated tax or extension payment over $20,000 or 
• files an original return with a tax liability over $80,000.

Payments made by check must include the appropriate FTB voucher and be separated by payment type and tax year. For example, if your client is making the PTE elective payment for 2022 tax year, they must include the California Form 3893 (PTE) for tax year 2022 with their check.

Please note if your client combines quarterly estimated tax payments that together exceed over $20,000 for an individual or corporation, it may trigger mandatory electronic payments in the future for that taxpayer.

Submitting separate payments for each tax year and each payment type will ensure your clients' payments are processed timely and accurately. For more information, go to disaster declaration tax payments.

Extended Due Date to File Tax Returns and Power of Attorney

The extended due date to file tax returns for your clients is Monday, October 16. If you do not already have a Power of Attorney (POA) on file to represent your client, then now is the time to file one.

For faster service, file a POA with a MyFTB Account.

New Audit Information in MyFTB

We expanded the audit information available in MyFTB for individual taxpayers. Taxpayers and tax professionals with a MyFTB Account, an active POA relationship, and full online account access can now view scheduled protest hearing information (such as tax year, date, time and status) and upload documents in advance of the protest hearing. Taxpayers and tax professionals can also view and protest Notice of Proposed Adjusted Carryover Amounts.

These features should help reduce the amount of paper correspondence exchanged during the protest process and reduce the time needed to complete the protest.

Changes to the New Employment Credit 

The New Employment Credit is available to qualified taxpayers for qualified employees hired through the taxpayer's 2025 taxable year. Employers must hire qualified employees, pay qualified wages, and have an increase in the number of jobs. 

The passage of SB 131 recently expanded the credit to additional taxpayers. These changes impact who can be a qualified taxpayer, how those qualified taxpayers compute qualified wages, and when the required tentative credit reservation (TCR) must be obtained.

Qualified Taxpayers

Previously, qualified employees had to perform work for their employers in certain parts of the state, known as the Designated Geographic Area. Now, taxpayers in certain industries that operate in any part of the state can qualify for the credit. These industries are:

• Semiconductor manufacturing, research, and development 
• Electric airplane manufacturing 
• Lithium production 
• Lithium battery manufacturing 

Visit New employment credit for more information.

Qualified Wages

Taxpayers in the expanded industries will compute their qualified wages differently.  For these industries, qualified wages are the amounts paid between 100% and 350% of California's minimum wage. Other taxpayers will continue to compute qualified wages as the amount between 150% and 350% of minimum wage. 

TCR Timing

We require all taxpayers to obtain a Tentative Credit Reservation (TCR) from us when a new qualified employee is hired.   

Newly eligible taxpayers in one of the four newly qualifying industries, and only for employees hired during their 2023 taxable year, must obtain a reservation by one month after the end of their 2023 taxable year. For example, a calendar year taxpayer who hires a qualified employee in 2023 will have until January 31, 2024, to get a reservation for that employee.   

Beginning with an employee hired in their 2024 taxable year, a newly eligible taxpayer in one of the four newly qualifying industries must get a TCR within 30 days of completing their New Hire Reporting Requirements with the Employment Development Department. This is the same deadline applicable to taxpayers who qualified for the NEC prior to the recent expansion.  

Getting a TCR

We are currently updating our online TCR system to allow taxpayers to get reservations under these new rules. We anticipate the updated system will be ready on January 3, 2024. Taxpayers who qualify under the old rules can continue to get their reservations while we make updates to the system. 

Get additional information on the New Employment Credit.

Senate Bill 131 Subjects Incomplete Gift Non-Grantor (ING) Trust Income to Taxation

Under Revenue and Taxation Code (R&TC) section 17082, for taxable years beginning on or after January 1, 2023, the income of an ING trust must be reported in a qualified taxpayer’s gross income to the extent the income would be considered in computing the qualified taxpayer’s taxable income if the ING trust were treated as a grantor trust under R&TC section 17731. A qualified taxpayer is the grantor of the ING trust.

To report the taxable income from an ING trust, the qualified taxpayer must file a California Fiduciary Income Tax Return Form 541 and check the box to designate the trust as an ING Trust. The ING trust income/losses and expenses/deductions would then be reported on the qualified taxpayer's California Resident Income Tax Return Form 540 as California additions and subtractions for the various ING trust income sources. 

Section 17082 includes a narrow exception for certain electing ING trusts. The ING trust income would not be included in the qualified taxpayer’s gross income for a taxable year if the following apply: 

1. The ING trust's fiduciary timely files an original California Fiduciary Income Tax Return Form 541 and makes an irrevocable election, by checking the Form 541 election box to be treated as a resident non-grantor trust. 
2. The ING trust is a non-grantor trust. 
3. 90% or more of the ING trust’s distributable net income is distributed, or treated as being distributed, to a charitable organization as defined in Internal Revenue Code (IRC) section 501(c)(3). 

Section 17082 does not apply to Charitable Remainder Trusts (CRT). California conforms to IRC section 664, and its underlying regulations. Accordingly, the income from CRTs is not subject to this new provision. 

The provisions of section 17082 also apply to ING trust income if the qualified taxpayer is a California nonresident. Accordingly, nonresident grantors of ING trusts would have a filing requirement in California if the ING trust received California sourced taxable income. As a nonresident, to report the taxable income from an ING trust, the qualified taxpayer must file a California Fiduciary Income Tax Return Form 541 and check the box to designate the trust as an ING Trust. The ING trust income/losses and expenses/deductions would then be reported on the qualified taxpayer's California Nonresident or Part-Year Resident Income Tax Return Form 540NR as California additions and subtractions for the various ING trust income sources. 

The existing rules regarding distributions to beneficiaries would continue to apply to distributions from an ING trust. 

Senate Bill 131 (Chapter 55, Statutes of 2023) was enacted on July 10, 2023. Since this law was chaptered in 2023, estimated tax underpayment penalties will not apply to any underpaid estimated tax payments for the 2023 taxable year.

Visit Incomplete gift non-grantor trustsfor more information.

Power of Attorney (POA) and Tax Information Authorization (TIA) Relationship Requests Update

Beginning October 2, 2023, a change is coming to FTB’s relationship verification process to improve our response time frame from 45 to 20 days. The goal is to shorten the amount of time your POA/TIA submission remains on hold and to expedite resolution. 

As a reminder, the intent of the relationship verification process is to provide additional taxpayer protection by adding a layer of security to prevent unauthorized access to confidential information. FTB verifies all new POA and TIA relationship requests. If we are unable to verify the relationship between a taxpayer and representative during our initial processing, we send the taxpayer a letter to contact us directly. 

Taxpayers will now have 20 days to respond to the relationship verification letter. If a taxpayer does not contact us within 20 days, we will reject the POA or TIA relationship request. But taxpayers do not have to wait for the letter to approve the POA or TIA relationship. To expedite processing, the taxpayer can call us at 916-845-5525 to approve the POA or TIA relationship.

When to Submit One-Time Penalty Abatement Requests

FTB was to begin accepting one-time penalty abatement requests on April 17, 2023, for taxable years beginning on or after January 1, 2022, for failure-to-file or failure-to-pay timeliness penalties. Due to the 2022 extended filing and payment deadline of October 16, 2023, for those impacted by the California winter storms, requests for one-time penalty abatement should be submitted after the October 16, 2023, extended due date. 

Unlike the federal first-time abatement penalty, the California penalty abatement is only available to individual taxpayers (not business entities) and is a once in a lifetime abatement. Taxpayers may choose to pursue one-time abatement as an alternative to reasonable cause abatement, or they may pursue one-time abatement after a request for reasonable cause abatement has been rejected. 

Taxpayers may choose to request a one-time penalty abatement in writing, by filing FTB 2918, or verbally, by calling 800-689-4776. 

To be eligible, taxpayers must: 

• Be compliant with all tax return filing requirements. 
• Have not previously been granted a one-time abatement under R&TC 19132.5. 
• Have paid in full all outstanding liabilities (other than the specific timeliness penalty you are seeking to have abated) or arranged to pay pursuant to an installment agreement and be current on all installment payments. 

If a penalty abatement request is rejected, the taxpayer is mailed a rejection letter. There are no appeal rights for the rejection of a one-time penalty abatement request on an unpaid balance. The taxpayer is advised to pay in full and then file a claim for refund. 

Get additional information about Help with penalties and fees.

Indexing

Announcing the 2023 tax tier indexed amounts for California taxes. 

We update the following annually: 

• State income tax brackets 
• Filing requirement thresholds
• Standard deduction 
• Certain credits for inflation (based on the California Consumer Price Index (CCPI) 

This year the inflation rate, measured by the CCPI for all urban consumers from June 2022 to June 2023, is 3.1%. Last year, California’s inflation rate measured at 8.3%. 

See the 2023 California tax table for more information. 

The following are some of the changes: 

Filing Status	2022 Amounts	2023 Amounts
Standard deduction for single or married  filing separate taxpayers	$5,202	$5,363
Standard deduction for joint, surviving spouse, or head of household taxpayers	$10,404	$10,726
Personal exemption credit amount for single, separate, and head of household taxpayers	$140	$144
Personal and Senior exemption credit   amount for joint filers or surviving spouses	$280	$288
Dependent exemption credit	$433	$446
Renter’s Credit is available for single filers with adjusted gross incomes of	$49,220 or less	$50,746 or less
Renter’s Credit is available for joint filers with adjusted gross incomes of	$98,440 or less	$101,492 or less

The complete 2023 tax rates and exemption amounts will be available on FTB’s website in late December. 

2023 California tax rate schedules

Single or married/RDP filing separately 

If the amount on Form 540, line 19 is: 

Schedule X 

Over-	But not over-	Enter on Form 540, line 31
$0	$10,412	$0.00 +1.00% of the amount over $0
10,412	24,684	104.12 + 2.00% of the amount over 10,412
24,684	38,959	389.56 + 4.00% of the amount over 24,684
38,959	54,081	960.56 + 6.00% of the amount over 38,959
54,081	68,350	1,867.88 + 8.00% of the amount over 54,081
68,350	349,137	3,009.40 + 9.30% of the amount over 68,350
349,137	418,961	29,122.59 + 10.30% of the amount over 349,137
418,961	698,271	36,314.46 + 11.30% of the amount over 418,961
698,271	& OVER	67,876.49 + 12.30% of the amount over 698,271

Married/RDP Filing jointly or qualifying widow(er)

If the amount on Form 540, line 19 is: 

Schedule Y 

Over-	But not over-	Enter on Form 540, line 31
$0	$20,824	$0.00 +1.00% of the amount over $0
20,824	49,368	208.24 +2.00% of the amount over 20,824
49,368	77,918	779.12 +4.00% of the amount over 49,368
77,918	108,162	1,921.12 + 6.00% of the amount over 77,918
108,162	136,700	3,735.76 + 8.00% of the amount over 108,162
136,700	698,274	6,018.80 + 9.30% of the amount over 136,700
698,274	837,922	58,245.18 + 10.30% of the amount over 698,274
837,922	1,396,542	72,628.92 + 11.30% of the amount over 837,922
1,369,542	& OVER	135,752.98 + 12.30% of the amount over 1,396,542

Head of household 

If the amount on Form 540, line 19 is: 

Schedule Z 

Over-	But not over-	Enter on Form 540, line 31
$0	$20,839	$0.00 +1.00% of the amount over $0
20,839	49,371	208.39 + 2.00% of the amount over 20,839
49,371	63,644	779.03 + 4.00% of the amount over 49,371
63,644	78,765	1,349.95 + 6.00% of the amount over 63,644
78,765	93,037	2,257.21 + 8.00% of the amount over 78,765
93,037	474,824	3,398.97 + 9.30% of the amount over 93,037
474,824	569,790	38,905.16 + 10.30% of the amount over 474,824
569,790	949,649	48,686.66 + 11.30% of the amount over 569,790
949,649	& OVER	91,610.73 + 12.30% of the amount over 949,649

Information and Help for Suspended or Forfeited Business Entities

In the September 2023 edition of Tax News, we informed you about the resumption of the business entity pre-suspension and suspension processes effective September 1, 2023. The business entity pre-suspension and suspension processes were suspended from February 2, 2022, through August 31, 2023, to assist businesses during tough economic times.

As the year ends, we want to reiterate the information available and the steps to take to revive a suspended or forfeited business. FTB suspended or FTB forfeited usually means that the business entity was suspended or forfeited by the Franchise Tax Board for failure to meet its tax requirements.

For example, if there was a failure to:

• File a return
• Pay
• Taxes
• Penalties
• Fees
• Interest

If your client’s business entity is suspended or forfeited, the Secretary of State (SOS) cannot accept termination documents. You must complete all the following requirements before you submit your termination documents to SOS: 

• Pay all outstanding balances due
• File any delinquent tax returns
• File a revivor request form

To revive an entity, you will have to contact our Revivor Unit.

For information to revive an entity, go to My Business is Suspended.

You can also use the Online Revivor Assistance Request Form or call the Revivor Unit at 916-845-7033.

Internal Revenue Service (IRS) Updates and More

We partnered with the IRS to provide monthly IRS articles to assist our tax professional and small business communities. We are excited to share this information; however, if you have questions about the content, you will need to contact the IRS directly. 

IRS requests feedback on preview of proposed changes to Form 6765, Credit for Increasing Research Activities

IR-2023-173, Sept. 15, 2023 — The Internal Revenue Service released a preview of proposed changes to certain sections of Form 6765, Credit for Increasing Research Activities. The Credit for Increasing Research Activities is also known as the Research Credit.

IRS looks to hire 3,700 employees nationwide to help expand compliance for large corporations and complex partnerships; experienced accountants encouraged to apply for Revenue Agent positions

IR-2023-172, Sept. 15, 2023 — As part of larger transformation work underway to make improvements, the Internal Revenue Service announced the opening of more than 3,700 positions nationwide to help with expanded enforcement work focusing on complex partnerships and large corporations. 

IRS requests comments on expanding tax certainty and issue resolution programs for business taxpayers

IR-2023-171, Sept. 15, 2023 — The Internal Revenue Service is requesting comments from taxpayers and advisors about improving and expanding tax certainty and issue resolution options for business taxpayers. 

Red flags for Employee Retention Credit claims; IRS reminds businesses to watch out for warning signs of aggressive promotion that can mislead people into making improper ERC claims

IR-2023-170, Sept. 14, 2023 — The Internal Revenue Service continues to warn businesses to watch out for aggressive marketing by nefarious actors involving the Employee Retention Credit (ERC) and urged people to watch out for red flags that can signal trouble.

IRS reminder: Make sure to understand recent changes when buying a clean vehicle

IR-2023-160, Sept. 1, 2023 — The Internal Revenue Service reminded consumers considering an automobile purchase to be sure to understand several recent changes to the new Clean Vehicle Credit for qualified plug-in electric drive vehicles, including qualified manufacturers and tax rules.

Ask the Advocate: Season of Change

The Taxpayers’ Rights Advocate’s Office attracts many talented and dedicated individuals; however, we often do not keep them long due to the high visibility of their roles. As summer changes to fall, we bid farewell to one team member, and we welcome another team member.

Victoria Ramirez recently accepted a promotion and leaves us for new opportunities, but fortunately remains at FTB. She will provide her enterprise knowledge and expertise to enhance our Legislative Services Bureau.

We benefited greatly from her excellent public speaking skills as she delivered useful information to taxpayers and tax professionals, and we valued her contributions as a team member. Victoria nourished many wonderful, collaborative relationships fostered both within FTB and with you, our tax practitioner partners. We wish Victoria much continued success in her new career endeavor. Congratulations Victoria!

We welcome Judy Leid as our new Trade Media and Tax Practitioner Liaison. She joins the team from the National Business Audit Bureau where she provided excellent customer service as an auditor and technical lead. Judy worked a variety of audit workloads including multistate corporations and multistate pass-through entities and applied flow-through adjustments at the personal income tax level.

Help with penalties and fees.

Judy participated in multiple projects and teams where she trained and developed staff and collaborated with various areas of the department. She successfully led auditors in which she reviewed their cases, provided constructive feedback, consulted on technical issues, and fostered a positive work environment.

Prior to joining FTB, Judy’s career highlights include working at a public accounting firm where she provided assurance services to public and non-public clients. She also was a senior accountant at a local credit union where she prepared monthly financial statements as well as facilitated and organized month-end close of the general ledgers. Judy holds a Bachelor of Science degree in Business Administration with a concentration in Accountancy from California State University, Sacramento.

We are excited to have you on the team Judy!

While our team changes, one thing remains the same, our goal to provide excellent customer service to you. We are motivated to bring our best, share ideas, and deliver excellent products and services to California taxpayers and tax professionals.