Taxpayers who do not pay enough California tax throughout the year through withholding and estimated tax payments may be subject to an underpayment of estimated tax penalty.
Form 5805 is used to determine whether a penalty applies and, in some situations, whether a waiver of the penalty may be requested.
Program Entry
State → Edit California → Miscellaneous Forms → Underpayment of Estimated Tax (Form 5805)
What Is Form 5805?
Form 5805 is used to calculate a penalty when sufficient California tax was not paid during the year through:
- California withholding
- Estimated tax payments
- Other qualifying payments
In many cases, the California Franchise Tax Board (FTB) will calculate the penalty automatically. However, completing Form 5805 may help determine whether a penalty applies or whether a waiver can be requested.
Who May Owe an Underpayment Penalty?
You may be subject to an underpayment penalty if:
- You owe more than $500 when filing your California return, or
- You owe more than $250 if filing Married/RDP Filing Separately
and
- You did not pay enough tax during the year through withholding, estimated payments, or a combination of both.
Taxpayers with significant self-employment income, investment income, rental income, or other income not subject to withholding are more likely to encounter an underpayment penalty.
Prior Year Tax Liability
The program asks for your prior year California tax liability.
Enter the amount shown on your prior year's California return as indicated in the program instructions.
This amount is used when determining whether you met one of California's safe harbor requirements and whether an underpayment penalty may apply.
Penalty Payment Date
You may be asked to enter the date the underpayment penalty was or will be paid.
This information helps determine the correct penalty calculation when a payment is made before the return due date.
Information Regarding Your Current Year Withholding
This section allows you to review and enter information related to your California withholding for the current tax year.
Accurate withholding information is important because withholding is generally treated as having been paid evenly throughout the year, regardless of when it was actually withheld.
Request a Waiver of Penalty
California may waive all or part of an underpayment penalty in certain situations.
Examples may include:
- Casualty or disaster events
- Serious illness
- Other unusual circumstances beyond your control
If you believe reasonable cause exists, you may complete the waiver section and provide any required explanation.
Important: Completing a waiver request does not guarantee that the California Franchise Tax Board will approve the waiver.
What Is the Annualized Income Method?
Some taxpayers do not earn income evenly throughout the year.
For example, a taxpayer may:
- Receive most income at the end of the year
- Operate a seasonal business
- Receive a large capital gain late in the year
- Have fluctuating self-employment income
In these situations, the Annualized Income Method may reduce or eliminate an underpayment penalty by calculating required payments based on when the income was actually earned.
If your income was received unevenly throughout the year, you may want to review whether the annualized method is beneficial.
When Should I Use the Annualized Method?
Consider the annualized method if:
- Your income varied significantly during the year.
- Most of your income was earned during later months.
- You were unemployed or retired for part of the year.
- You experienced large one-time income events.
Taxpayers with fairly consistent income throughout the year will often leave this option set to No.
Important Information
Form 5805 is not required for every California taxpayer.
Many taxpayers who owe a balance due will not owe an underpayment penalty, while others may qualify for a waiver or a reduced penalty through the annualized income method.
Review your withholding, estimated payments, and prior year tax liability carefully before completing Form 5805.