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Assuming no income taxes are withheld, does paying 30%, 40%, 0%, and 30% (33, 44, 0, and 33 for high earners) of previous year taxes by each respective estimated tax due date meet safe harbor requirements to avoid penalties and interest in the State of California?

2018 Instructions for Form FTB 5805:

If you meet any of the following conditions, you do not owe a penalty for underpayment of estimated tax. Do not complete or file this form if:

...

The amount of your withholding plus your estimated tax payments, if paid in the required installments, is at least 90% of the tax shown on your 2017 return or 100% of the tax shown on your 2016 return (110% if California adjusted gross income (AGI) was more than $150,000 or $75,000 if married/RDP filing a separate return) and you are not using the annualized income installment method. Taxpayers with California AGI equal to or greater than $1,000,000 (or $500,000 if married/RDP filing a separate return), must use the tax shown on their 2017 tax return if they do not meet one of the two conditions above.

Are there any interactions if the prior year return only includes a partial year of income? (e.g. only worked for half the year, can the previous year taxes due still be used for calculations even though it would mean a tax bill come April?)

Edit: possibly

26 U.S. Code § 441. Period for computation of taxable income:

(b) Taxable yearFor purposes of this subtitle, the term “taxable year” means— (1) the taxpayer’s annual accounting period, if it is a calendar year or a fiscal year;

26 U.S. Code § 443. Returns for a period of less than 12 months:

(a) Returns for short period A return for a period of less than 12 months...shall be made under any of the following circumstances: (1) Change of annual accounting period ... (2) Taxpayer not in existence for entire taxable year When the taxpayer is in existence during only part of what would otherwise be his taxable year.

CA RTC General Provisions and Definitions 17010:

“Taxable year” means the calendar year or the fiscal year upon the basis of which the taxable income is computed under this part. If no fiscal year has been established, “taxable year” means the calendar year. “Taxable year” means, in the case of a return made for a fractional part of a year under this part or under regulations prescribed by the Franchise Tax Board, the period for which the return is made. (Repealed and added by Stats. 1955, Ch. 939.)

AIUI, a return would still be filed for the entire previous calendar year, even though income (using annualization method) falls only in the last quarter, for example.

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    please include the source of the quote. It helps readers understand where the information comes from. – mhoran_psprep Mar 30 at 12:07
  • Well, for one, if your California AGI this year is at least $1 million, then no, paying x% of last year's taxes does not avoid penalties. – user102008 Mar 30 at 16:03
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No, you are not eligible for the previous year tax safe harbor if the previous year did not cover a full 12 months.

In the 2018 Instructions for Form FTB 5805, line 5:

If you did not file a tax return for 2017, or if your 2017 taxable year was less than 12 months, do not complete line 5. Instead, enter the amount from line 2 on line 6. If your California AGI is equal to or greater than $1,000,000/$500,000 for married/RDP filing separately, use line 2.

However, if you are resident of California for the entire year, even if you only worked for part of the year, that might still qualify. I suspect the above quote only disqualifies people who were partial-year residents the previous year.

  • +1 for pointing out section that I missed :) Moved other comments as edit in OP. – arcyqwerty Mar 30 at 19:29

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