When California income tax goes unpaid, the Franchise Tax Board (FTB) can collect without first going to court. Bank levies, wage garnishments, and liens are its most common tools. Knowing how each one works, and which payment options exist, makes it easier to respond promptly and in an orderly way.
When Collection Begins
Collection generally follows a final, unpaid balance. A proposed assessment that is not protested becomes final after 60 days (Revenue and Taxation Code (R&TC) § 19042), and a liability that is not paid when due becomes a perfected and enforceable state tax lien by operation of law (R&TC § 19221). The FTB’s Notice of State Income Tax Due (FTB 4963) is one of the notices it sends for a past-due personal income tax balance.
If the tax itself is disputed and the protest and appeal deadlines have passed, the usual route is to pay and file a claim for refund. A collection notice is not a substitute for a timely protest.
Bank Levies (Orders to Withhold)
The FTB can issue an Order to Withhold to a bank or other third party. According to the FTB, it may take money from bank accounts or other financial assets, or other property of the taxpayer held by a third party, and personal income tax orders collect 100 percent of the available assets or the entire balance due, whichever is less.
Wage Garnishments (Earnings Withholding Orders for Taxes)
The FTB can also issue an Earnings Withholding Order for Taxes to an employer, requiring a portion of each paycheck to be sent to the FTB. The FTB states that taxpayers can log in to MyFTB to check the balance, verify the status of a withholding order, or request a modification of an earnings withholding order. A taxpayer facing financial hardship should raise it promptly and be prepared to document income and necessary expenses.
State Tax Liens
The FTB may record a Notice of State Tax Lien with county recorders, which affects real property, or file it with the California Secretary of State, which affects personal property. According to the FTB, the lien becomes public record, attaches to California real and personal property the taxpayer owns now or acquires later, is effective for at least 10 years and may be extended, and may affect credit and the ability to sell or refinance. The FTB states that the quickest way to obtain a release is to pay the liened debt in full.
Large Balances: The Top 500 List
California law requires the FTB to publish, at least twice a year, a list of the 500 largest tax delinquencies over $100,000 (R&TC § 19195). The FTB sends a notice 30 days before placement on the list. According to the FTB, taxpayers on the list may have professional, occupational, or driver’s licenses suspended, and state agencies may refuse to contract with them.
Payment Plans
Individuals can request a payment plan online, by phone, or by mail. The FTB’s criteria for its standard plan are an amount due of $25,000 or less, payment within 60 months or less, and filed income tax returns for the past five years. The FTB charges a $34 setup fee, processing can take up to 90 days, and a tax lien may be a condition of the arrangement.
California law generally bars a levy while a request for an installment agreement is pending and while an agreement is in effect (R&TC § 19008). Interest and penalties continue to accrue until the balance is paid.
Offers in Compromise
The FTB also has an offer in compromise program for taxpayers who cannot pay the full amount. Eligibility depends on ability to pay, the value of assets, current and future income and expenses, the potential for circumstances to change, and whether the offer is in the best interest of the state. Individuals apply using form FTB 4905PIT. The FTB notes that collection actions do not automatically stop when an offer is submitted, although in most cases no new collection actions are taken during review; if an offer is approved, collection stops and state tax liens are released.
How Long the FTB Can Collect
The FTB generally may not collect a liability after 20 years have passed from the date the latest liability for the tax year became due and payable (R&TC § 19255). That period can be extended or suspended in certain situations, including a bankruptcy case and periods when an installment agreement bars a levy.
The Bottom Line
FTB collection actions follow a predictable sequence. Reading each notice, confirming the balance, and addressing the debt through payment in full, a payment plan, or an offer in compromise are the practical ways to bring collection to an end.
Facing FTB collection?
Tax attorney Cassra Minai, Esq. can review your notices and collection options in a confidential consultation.