Why California Wants 70% of Your Estimated Tax by June, and What That Means for January

2026-10-16 · RKube Services

California splits estimated tax 30/40/0/30, not in four equal parts. Here is the 2026 schedule, the $150,000 and $1 million prior-year rules, the January 15, 2027 payment and how to catch up before the year closes.

If you're self-employed in California, own part of an S corporation or partnership, or had a big capital gain this year, you pay estimated tax twice: to the IRS and to the Franchise Tax Board (FTB). The dates are the same. The amounts aren't. The IRS wants four equal payments. California wants 30% in April, 40% in June, nothing in September and the last 30% in January.

That uneven schedule is why a lot of Californians end up with a state underpayment penalty even when they paid the full year's amount. This guide covers the 2026 rules from the FTB's Form 540-ES instructions: who has to pay, how much, the prior-year limits at $150,000 and $1 million of income, the January 15, 2027 payment and how to fix a short year before it closes, with one example from a consultant in Los Angeles, CA and one from a founder in San Francisco, CA.

The 2026 schedule

Source: 2026 Instructions for Form 540-ES, Franchise Tax Board.

Compare federal estimates under IRS Form 1040-ES: 25% at each of the same four dates. By June 15, California expects 70% of the year's state estimate. The IRS expects 50%.

The September date still exists in California, it just has no required amount. A payment you make in September isn't wasted. It counts toward January. But if you skipped June because you assumed September would catch you up, the June installment is already short, and the penalty runs on it from June 15.

Fiscal-year filers use the 15th day of the 4th, 6th and 9th months of the fiscal year and the 1st month of the next one. When a due date lands on a weekend or holiday, the next business day counts.

Who has to pay

For tax year 2026, you generally must make California estimated payments if both of these are true:

1. You expect to owe at least $500 ($250 if married/RDP filing separately) after withholding and credits.
2. You expect your withholding and credits to be less than the smaller of 90% of your 2026 tax or 100% of the tax on your 2025 return (including AMT).

You don't have to pay estimates if you're a nonresident or new resident in 2026 and had no California tax liability for 2025.

How much: the three tiers of the required annual payment

The "required annual payment" is the number the 30/40/0/30 percentages apply to. California sets it in three tiers, based on your California adjusted gross income (AGI):

The last row is the one that hurts. Federal rules let a high earner use 110% of last year's tax as a safe harbor no matter how much this year's income jumps. California takes that away once 2026 AGI reaches $1 million. A founder who sells shares, an owner who sells a business, or anyone with a large one-time gain has to estimate on the current year's income in California, even if they're fully covered federally by last year's tax.

This rule doesn't apply to farmers and fishermen, who have their own option (below).

If your taxable income is over $1 million, the estimate also needs to include California's 1% Behavioral Health Services Tax (formerly the Mental Health Services Tax) on the amount over $1 million. The 540-ES worksheet has a line for it.

Worked example: a Los Angeles consultant

A self-employed marketing consultant in Los Angeles, CA files single. Their 2025 California AGI was $180,000, and the tax on their 2025 Form 540 was $9,000. They expect 2026 California tax of about $12,000. Nothing is withheld.

Because 2025 AGI was over $150,000, the prior-year option is 110% of $9,000, which is $9,900. Ninety percent of 2026 tax is $10,800. The required annual payment is the lesser, $9,900.

If the consultant paid California in four equal amounts, they'd be $495 short at April and $1,980 short by June, and the FTB figures the penalty separately for each installment. Paying $2,475 in September and January would only stop the June shortfall from growing. The penalty for April through September would still be there.

The remaining $2,100 of 2026 tax (the gap between $9,900 and $12,000) is due by April 15, 2027 with the return, with no underpayment penalty, because the safe harbor was met.

These figures are an illustration, not a tax calculation for any real person.

Worked example: a San Francisco founder over $1 million

A founder in San Francisco, CA had $210,000 of AGI in 2025 and paid $15,000 of California tax. In August 2026 they sell shares in a secondary sale, and 2026 AGI will be about $1.4 million.

Federally, they could rely on 110% of 2025 federal tax as their safe harbor. In California they can't. With 2026 AGI over $1 million, the required annual payment is 90% of the 2026 California tax. If the 2026 California tax comes to roughly $140,000, that's $126,000. And because the income came in August, they'd want to look at the annualization option on form FTB 5805, which matches installments to when income was actually received. Without it, the April and June installments are measured against the full-year number.

The trap is simple: the federal safe harbor is met, and the California one never existed.

The January 15, 2027 payment, and the shortcut

The 4th installment for 2026 is due January 15, 2027. California has one shortcut: if you file your 2026 return by January 31, 2027 and pay the entire balance due, you don't have to make the last estimated payment and you won't owe a penalty for the 4th installment. It doesn't fix shortfalls in April or June.

Farmers and fishermen (at least two-thirds of 2025 or 2026 gross income from farming or fishing) can either pay all of their estimated tax by January 15, 2027, or file and pay in full by March 1, 2027 and skip estimates for 2026.

Catching up before the year ends

If you're behind for 2026, a few options help:

• Pay more now. A larger January payment stops the shortfall from growing, even if earlier penalties stay.
• Increase California withholding. If you or your spouse has a W-2 job, file a new Form DE 4 with the employer to raise California withholding for the rest of the year. DE 4 is California's form and isn't the same as the federal W-4.
• Annualize. If most of your income arrived late in the year, the annualized method on FTB 5805 can reduce or remove penalties for earlier installments.
• Apply last year's overpayment. Any 2025 overpayment you chose to apply to 2026 counts as an estimated payment.

The FTB figures the underpayment penalty for each installment separately, so you can owe one for an earlier date even if you pay the full amount later. Penalty waivers exist but are narrow (form FTB 5805, Part I).

Two rules owners of S corps and partnerships should know

Mandatory e-pay

Once you make any estimate or extension payment over $20,000, or file an original return with total tax over $80,000, every later payment must be made electronically, regardless of amount or tax year. Paying by check after that triggers a 1% noncompliance penalty. The first payment that crosses the line doesn't have to be electronic.

The PTE elective tax has its own June 15 date

If your S corporation or partnership elects California's 9.3% pass-through entity (PTE) elective tax, the entity's first payment, the greater of $1,000 or 50% of the prior year's PTE tax, is due June 15 on form FTB 3893. That's separate from your personal 540-ES estimates. For taxable years 2026 through 2030, the FTB says missing or underpaying the June 15 payment no longer blocks the election, but owners must cut their PTE credit by 12.5% of their share of the unpaid amount. The remaining PTE tax is due by the original due date of the entity's return. The credit you'll get from the PTE tax can lower your own required estimates, so coordinate the two.

Questions California owners ask

I paid California in four equal installments. Will I owe a penalty? Probably a small one, for April and June. The penalty is figured per installment, so being ahead in September doesn't erase a June shortfall.

Do I have to pay anything on September 15? No. California requires 0% for the 3rd installment. You can pay then if you want, and it counts toward January.

I moved to California in 2026. Do I owe estimates? Not if you had no California tax liability for 2025. Plan on paying with the return instead, or start estimates if you'd rather avoid a big April bill.

My income was over $1 million only because of one sale. Is there any relief? The current-year rule still applies, but annualizing on FTB 5805 can push most of the required payment to installments after the sale.

This guide is general information based on the FTB's 2026 Form 540-ES instructions, the 2025 FTB 5805 instructions and FTB PTE guidance as of October 2026, not tax advice for your situation.

If you want someone to work out the California and federal numbers together each quarter, that's part of what RKube Services does for owners: rkubeservices.com.