Many California state taxpayers are surprised to receive a “Notice of State Income Tax Due” from the Franchise Tax Board (FTB) even though they believed they paid their tax bill. The reasons for this discrepancy can be technical and varied. It may stem from something as simple as a misapplied payment or as complex as a federal or California state reporting mismatch or audit adjustment. Common causes include underpaid estimated taxes, calculation or processing errors, accrued penalties and interest, or the offset of refunds to satisfy unrelated debts (such as child support or fines). For example, the FTB notes that missing identification numbers or minor data entry errors can cause a payment to be applied to the incorrect account or tax year. Likewise, if your estimated tax payments or credits don’t match FTB records, the system can trigger a balance due notice. Even if you paid the amount shown on your return, interest or penalties may have since accumulated (at current rates around 8% annually), or another liability may have been added.
Why an FTB Balance Still Shows Up: Eight Common Triggers
Payment Misapplication
A check or electronic payment can be misposted if it lacks proper identifiers. The FTB warns taxpayers to “provide all available identification numbers and the full entity name” to prevent payments from landing in the wrong account. If a payment is posted to a different tax year or a similarly named taxpayer, the original tax debt remains.
Underpaid Estimated Taxes
California state requires individuals and businesses to prepay at least 90–100% of their current-year tax liability (or 100% of last year’s tax). Failing to meet this safe harbor triggers an estimated tax penalty. The FTB explicitly calculates a penalty (essentially interest) on any underpaid quarterly installments from the due date until paid. Even if you timely filed and paid what you thought was enough, the FTB may determine you still owe if you under-withheld or underpaid quarterly.
Return Filing and Processing Errors
Mistakes on the return itself can cause a shortfall. For example, common errors include transferring amounts incorrectly on amended returns, miscalculating credits, or using the wrong tax table entries. Clerical or software errors can lead the FTB to issue an assessment. Processing delays can also play a role: the FTB often holds notices until after the filing deadline to ensure timely payments postmarked on April 15 are applied, but if there’s any glitch, you may still see a notice.
Penalties and Interest Accrual
Even a small late payment or deficiency can incur tax penalties. California state imposes a 5% late-payment penalty plus 0.5% per month (up to 40 months) on any balance not paid by the return due date. In addition, interest accrues daily from the original due date at the statutory rate (currently around 8% for underpayments). Thus, a tax you believe “paid” on April 15 might still owe a few dollars of penalty or accrued interest by the time the FTB processes everything.
Refund Offsets for Other Debts
The FTB can seize (offset) your state or federal tax refunds to satisfy unrelated obligations. For example, under the Treasury Offset Program (TOP), the FTB is authorized to intercept your federal income tax refund to pay a state tax debt. Conversely, through its Interagency Intercept Collection (IIC) program, the FTB can intercept a California state income tax refund (or even lottery winnings/unclaimed property) to pay for debts owed to state or local agencies. Commonly, past-due child support or government fines trigger such intercepts: local child support offices routinely have the FTB seize a delinquent parent’s state refund to pay arrears. Any refunded amount “taken” this way will leave the original tax balance in place.
California State/Federal Reporting Mismatches
California state starts its tax base with federal taxable income, but the two systems diverge in many respects. Certain federal deductions or credits do not apply in California (e.g., California does not conform to all federal modifications), which can create “addbacks” of income not anticipated. Likewise, if your federal return is audited, any adjustment (especially an increase in income) usually affects your California state tax return. California state law requires you to report federal tax audit changes within six months of a final IRS adjustment. If you fail to notify FTB promptly, the agency may open an audit of your California state tax return for up to four years (or even indefinitely if never notified), with penalties and interest accruing from the original due date.
Audit or Amended Return Adjustments
Apart from federal audits, the FTB itself may audit your return and propose changes (issuing a Notice of Proposed Assessment). Any error discovered—such as unreported income or disallowed deductions—will result in a reassessment. If you submit an amended California state tax return after filing, or if FTB amends your return on audit, additional tax may be due (or refunded). For pass-through entities, IRS partnership or S-corp audit adjustments can also flow through to state liabilities.
Community Property and Joint Returns
California’s community property rules can complicate joint filings. If married/RDP partners file separate tax returns, each must report one-half of the community income plus any separate income. Mistakes in dividing income can create underpaid taxes for one spouse. On joint returns, California state does not recognize an “injured spouse” refund like the federal system does: a joint refund is community property and can be applied to either spouse’s debts. This means one spouse’s separate tax debt can consume a joint refund even if the other had no liability. In short, community property allocations and spousal liabilities must be handled carefully to avoid unexpected balances.
Payment Plan Defaults or Other Delinquencies
If you entered an FTB installment agreement or provisional payment plan and missed payments, the FTB will treat the entire balance as immediately due. The outstanding balance continues to accrue interest and penalties even during a payment plan. A default notice (e.g., FTB Form 4029D for businesses) may follow, and dishonored payment fees or lien filings can be imposed. In practice, missing a payment usually means the FTB will extend your repayment period, but also step up collection actions, which can exacerbate the situation.
Why You Might Still Owe — Even After Paying Your FTB Bill
Each of the above factors can affect individuals and businesses in somewhat different ways. For example, business entities often face additional mandatory taxes and fees. Corporations owe an annual minimum franchise tax (typically $800) regardless of profitability, and LLCs pay an $800 yearly tax plus a variable fee based on income. Failing to pay these on time leads to automatic tax penalties. S corporations and partnerships do not pay California state tax themselves. Still, their owners must report pass-through income on their returns, so an audit or amendment at the entity level can result in state tax being assessed against shareholders or partners. Moreover, unfiled corporate returns or Statements of Information can trigger filing enforcement penalties.
Moreover, the interplay between federal and California state laws can compound issues. The FTB routinely shares data with the IRS. For instance, if you owe child support, the FTB will notify the IRS to intercept your federal tax refund (separate from the FTB intercepting it via TOP). Also, if the IRS audits your federal tax return and increases your income, that change typically means you owe more California state tax, and the longer you wait to report that to California state, the more risk you take of tax penalties and an open audit window.
Any of these issues can result in a residual balance. For example, even after a payment is made, penalties or interest may continue to accrue, or an intercept may claim the funds. California state law requires you to notify FTB of IRS audit adjustments within six months of a final change, because delays extend the state’s assessment period and increase your liability. In practice, an IRS audit adjustment not reported to California state can leave you owing years after the original tax return was filed – the FTB can collect delinquent tax for up to 20 years from the due date
Contact the Tax Law Offices of David W. Klasing If You’ve Received an Unexpected FTB Bill
At the Tax Law Offices of David W. Klasing, our dual-licensed Tax Attorneys and CPAs are uniquely equipped to resolve even the most complicated California state tax issues, especially when the Franchise Tax Board claims you still owe money despite having already paid. We understand how frustrating and stressful it can be to receive an unexpected FTB balance due notice. That’s why we start every engagement by thoroughly investigating the cause: obtaining your full FTB account transcript, reviewing your payment history, and confirming whether every dollar you sent was properly credited to the correct year, account, and taxpayer. If a payment was misapplied or lost, we act immediately, submitting proof like bank records, cancelled checks, or IRS confirmation forms to ensure your account is re-credited promptly.
If the notice is based on an underpayment of estimated taxes or a mathematical error, we recalculate your liability, identify any missed credits, and determine whether penalties and interest can be abated—for example, due to reasonable cause (e.g., illness or disaster) or under California state’ first-time abatement policy. If an audit (IRS or FTB) triggered the notice, we can file amended or protective returns, protest assessments, and defend your position through the FTB’s formal appeal procedures. We are deeply experienced in negotiating with the FTB and asserting taxpayer rights under the California Revenue and Taxation Code, including provisions such as R&TC § 19255 (regarding collections) and the six-month notification rule for federal audit changes.
We also help clients navigate complex refund offset situations. Whether your federal refund was seized through the Treasury Offset Program (TOP) or your California refund was intercepted for unrelated debts like child support or local fines. We work directly with the FTB’s Interagency Intercept unit and have successfully recovered misapplied refunds. For those on FTB installment agreements, we help renegotiate terms, seek hardship relief, and prevent or reverse collection actions, such as levies or liens, after default.
Whether you’re facing penalties, offset notices, audit adjustments, or misapplied payments, the tax law office of David W. Klasing will handle every step—from factual investigation and legal argumentation to protest filings and settlement negotiations. If there’s a way to correct the record, reduce your liability, or reclaim your refund, we will be sure to find it. Let our award-winning, dual-licensed team of attorneys and CPAs help you fix the problem and protect your financial future. Call the tax law offices of David W. Klasing at (800) 681-1295 or schedule a confidential, reduced-rate initial consultation today HERE.
