What California Form 540-ES Is For
California Form 540-ES (2018) provides payment vouchers and a worksheet for individuals who must pay estimated state income tax during the year. You use it when your income is not fully covered by withholding—such as self-employment, interest, dividends, capital gains, rental income, or prize winnings. Estimated tax equals the amount you expect to owe after subtracting credits and anticipated withholding.
You generally need to make estimated payments if you expect to owe at least $500 in California tax ($250 if married/RDP filing separately) and if your withholding and credits will not cover 90% of your 2018 tax or 100% of your 2017 tax. California’s system has a distinctive structure: four installments where April requires 30%, June requires 40%, September requires 0%, and January requires 30% of the required annual payment.
When You’d Use California Form 540-ES
You use Form 540-ES when you must prepay your 2018 income tax through installments. This applies when wages or other withholding won’t be sufficient or when you receive income that typically has no withholding. It also applies when federal law changes your tax profile, when you switch to self-employment, or when you anticipate large investment income.
The form is also relevant when filing late or amending payments. Missing or underpaying installments may trigger penalties, usually calculated on Form FTB 5805. If your income changes during the year, you may adjust your remaining payments. Taxpayers with seasonal or uneven income may instead use the annualization method to calculate varying payment amounts.
Key Rules or Details for the 2018 Tax Year
Who Must Pay
You must make payments if withholding and credits won’t cover either 90% of your 2018 tax or 100% of your 2017 liability (including AMT), and you will owe at least $500. Married/RDP filing separately filers use a $250 threshold. This rule applies broadly, including to independent contractors and taxpayers with variable investment income.
Safe Harbor and High-Income Rules
California’s safe harbor rules help avoid penalties. Most taxpayers qualify by paying the lesser of 90% of current tax or 100% of prior-year tax.
- High-income taxpayers (2017 AGI above $150,000, or $75,000 if filing separately) must use 110% of 2017 tax instead of 100%.
- Very high-income taxpayers (2018 AGI of $1,000,000 or more, or $500,000 if filing separately) must base payments solely on 2018 tax.
- Farmers and fishermen can pay all tax by January 15, 2019, or file by March 1, 2019, and pay the balance with no quarterly payments required.
Installment Percentages
California's installment percentages differ from federal rules:
- 1st installment (April 17, 2018): 30%
- 2nd installment (June 15, 2018): 40%
- 3rd installment (September 17, 2018): 0%
- 4th installment (January 15, 2019): 30%
Standard Deductions for Worksheet Use
Standard deductions for 2018:
- $4,236 for single or married/RDP filing separately
- $8,472 for married/RDP filing jointly, head of household, or qualifying widow(er)
Electronic Payment Requirement
If you make a payment over $20,000 or file a tax return with liability above $80,000, you must make all future payments electronically. Missing this obligation results in a 1% penalty.
Step-by-Step (High Level)
Step 1: Determine Whether You Need to Pay
Estimate your 2018 tax and compare it to expected withholding. If you will owe at least $500 ($250 if filing separately) and withholding won’t meet safe harbor, you must pay estimated tax.
Step 2: Gather Prior-Year and Current Information
Use your 2017 return and your projected 2018 income, deductions, withholdings, and credits. Include all income types—wages, self-employment, interest, dividends, capital gains, rental income, and other taxable amounts.
Step 3: Complete the Estimated Tax Worksheet
The worksheet walks you through computing expected 2018 AGI, deductions, credits, and tax. If you expect to itemize, estimate those deductions; otherwise, use California’s 2018 standard deduction. Include exemption credits and anticipated additional taxes such as AMT or mental health services tax.
Step 4: Apply Safe Harbor Requirements
Calculate 90% of your expected 2018 tax. Then compare to 100% of your 2017 tax (or 110% if high-income). Very high-income filers must use only actual 2018 tax. The lower of the applicable safe harbor amounts becomes your required annual payment.
Step 5: Subtract Expected Withholding
Reduce the required annual payment by expected withholding. If the remainder is below $500 ($250 for separate filers), you don’t need to make estimated payments.
Step 6: Calculate Installment Amounts
Multiply the remaining required annual payment by California’s percentages: 30%, 40%, 0%, and 30%. These become your required installments.
Step 7: Prepare Payment Vouchers
Complete each voucher with your name, SSN or ITIN, address, and the proper payment amount. Use blue or black ink.
Step 8: Choose Your Payment Method
You may pay by:
- Web Pay on the FTB website
- Electronic Funds Withdrawal when e-filing
- Credit card (service fee applies)
- Check or money order attached to the appropriate voucher
Do not mail vouchers if paying electronically.
Step 9: Keep Documentation
Record payment dates, amounts, and confirmation numbers. Save copies of checks and electronic confirmations for use when preparing your 2018 income tax return.
Step 10: Adjust During the Year
If your income increases or decreases, redo the worksheet and adjust remaining installments. Increase payments to avoid penalties or reduce them if earlier payments were too large.
Common Mistakes and How to Avoid Them
- Misapplying safe harbor rules — Confirm whether your AGI places you in the 110% or very high-income categories.
- Using incorrect installment percentages — California’s 30/40/0/30 structure differs from federal 25% installments.
- Triggering but ignoring electronic payment rules — After a payment above $20,000 or tax liability above $80,000, all future payments must be electronic.
- Ignoring income changes — Recalculate estimated tax when income fluctuates to avoid penalties.
- Leaving out income sources — Include all categories of taxable income in your worksheet.
- Using incorrect standard deduction amounts — California deduction amounts differ from federal rules.
- Overstating credits — Only include credits you are confident you will qualify for.
- Mailing vouchers when paying electronically — This causes unnecessary processing delays.
- Failing to track payments — Incomplete records can lead to mismatches on your final return.
- Overlooking annualization — Seasonal or uneven earnings may justify the annualized income method.
What Happens After You File
You can track all estimated payments through MyFTB. Payments will be credited to your 2018 account and applied to your tax return when filed. If you underpay or pay late, the FTB may assess penalties using Form FTB 5805. You may request a waiver if you can show reasonable cause, such as a disaster or other unusual circumstance.
If your estimated payments exceed your final tax liability, you may request a refund or apply the overpayment to your 2019 estimated tax. If you carry the amount forward, it will automatically count toward the first 2019 installment. As always, maintain documentation for at least four years in case the FTB questions payment amounts.
FAQs
What if I didn’t have a California tax liability in 2017?
If you were a nonresident or new resident in 2018 and owed no 2017 California tax, you generally do not need to make estimated payments unless you expect to owe at least $500 based solely on your 2018 income.
Can I vary my installment amounts instead of using 30/40/0/30?
Yes. Using the annualization method, you can pay unequal amounts based on actual income earned through each period. This method is helpful if your income is seasonal, though it requires filing Form FTB 5805.
What if I miss an installment deadline?
Pay as soon as possible. Penalties accrue from the missed due date to the payment date. If you had reasonable cause for missing the deadline, you may request a penalty waiver.
How do the rules differ for farmers and fishermen?
If at least two-thirds of your income comes from farming or fishing, you may either pay all estimated tax by January 15, 2019, or file your return by March 1, 2019, and pay all tax owed—avoiding quarterly payments.
What if I have both wages with withholding and self-employment income?
You may adjust your W-2 withholding upward using Form W-4 to cover the self-employment tax instead of making estimated payments. If withholding will cover safe harbor amounts, estimated payments are not required.
For official information, visit the California FTB’s page for Form 540-ES (2018):
https://www.ftb.ca.gov/forms/2018/18-540-es.html
