California taxpayers using payment plans will see some relief this summer. The California Franchise Tax Board (CA FTB) confirmed that starting July 1, 2025, the interest on state income tax debts will drop from 8% to 7%. The rate stays in place through December 31, 2025, and applies to individual taxpayers and businesses across California.
The update, explained in the agency’s April Tax News release, offers a modest but meaningful break. For people balancing personal income taxes, a tax bill, or even a long-term installment agreement, the change means less money lost to interest and more going toward paying down the balance. The Franchise Tax Board compounds interest daily, so even a one-point drop can make a noticeable difference over months of monthly payment plans.
FTB officials tied the decision to broader federal movements. By easing the rate, the state board aims to help taxpayers who owe taxes manage their financial situation without falling behind or facing new penalties. For many residents, the cut represents a welcome benefit at a time when household budgets remain stretched.
The California Franchise Tax Board announced the new 7% rate in its April 2025 bulletin. It applies to personal income taxes, corporate obligations, and franchise tax accounts. Both existing installment agreements and new payment plan applications submitted after July 1 qualify automatically.
For individual taxpayers, the drop translates directly into savings. For example, a $10,000 state tax balance will accrue more than $100 less in interest over six months. While that may not sound like much, it matters for families already working through large bills. Businesses also benefit, though their repayment terms are shorter—typically 12 months compared to 60 months for individuals.
The state board emphasized that eligible taxpayers don’t need to file a new form or request changes. The FTB system adjusts independently, so payments after July reflect the lower rate. That means individual taxpayers and businesses across California will see the benefit immediately, with no added process.
Monthly payment plans allow taxpayers to spread costs when they can’t simultaneously pay their entire tax bill. To qualify, individual taxpayers must owe $25,000 or less in state tax debt and agree to pay it off within 60 months. Businesses may also set up an installment agreement, but they must clear the balance within 12 months.
Before approval, the Franchise Tax Board requires filing all tax returns for the past five years. Applicants must also provide a Social Security number and details about their income so the FTB can determine eligibility. The state board reviews each request to decide if the proposed payments are affordable given the taxpayer’s financial situation.
Applications can be submitted by mail or through the official website. Most people now apply online, since the process is faster and easier. Setup fees are $34 for individuals and $50 for businesses. Payments can be made from a bank account, by mailed checks, or, in some cases, through employer wage deductions. If a taxpayer fails to keep up, the state can issue a tax lien, a bank levy, an earnings withholding order, or even a continuous order until the money is collected.
The state of California sets its tax interest rates by following federal benchmarks. The Franchise Tax Board reviews federal short-term interest rates each year and adjusts state tax percentages for unpaid balances, overpayments, and penalties. When federal rates go up, state interest does too—raising the cost for taxpayers who already owe.
History shows how volatile these numbers can be. In 2021 and 2022, the interest rate was just 3%, offering relief during a low-rate environment. In the early 1980s, however, taxpayers faced rates as high as 18%, making it extremely difficult for residents and businesses to afford their bills.
The FTB is providing short-term savings by lowering the current rate to 7% for the second half of 2025. However, taxpayers should remember that the process is ongoing, and depending on federal conditions, another adjustment could arrive as soon as January 2026.
In its April 2025 release, the California Franchise Tax Board explained, “For the period July 1, 2025, through December 31, 2025, the interest rate will be 7%. This rate is compounded daily, which accrues with respect to various state taxes, including personal, corporate, and franchise income.”
Tax professionals say the modest update matters for eligible taxpayers managing larger balances. One tax pro noted that a client with a $25,000 debt under an installment agreement could save several hundred dollars by year’s end. For individual taxpayers on monthly payment plans, this can make the difference between staying current and falling behind.
Experts warn residents to avoid third-party companies that charge steep fees for services the Franchise Tax Board already provides for free. The official website allows taxpayers to apply online, manage agreements, and track payments securely. Using outside services risks errors and Franchise Tax Board penalties if a taxpayer fails to meet obligations.
The FTB urges taxpayers not to pause payments while an application is pending. Interest continues to accrue until the due date, so sending payments on time is essential. Options include mailing checks, drafting funds from a bank account, or employer wage withholding.
If a taxpayer fails to meet the terms of an installment agreement, the state board can issue a tax lien, bank levy, earnings withholding order, or a continuous order that remains in effect until the balance is cleared. These steps can cause financial hardship by restricting access to wages and money.
Tax professionals encourage eligible taxpayers to review their financial situation often. If monthly payment plans become difficult to afford, the safest option is to request adjustments directly with the Franchise Tax Board before more decisive enforcement actions begin.
The Franchise Tax Board provides official resources for residents on its website, including eligibility rules, forms, and instructions to apply online. Individual taxpayers and businesses may also mail documents or contact an FTB office by phone for help. The best option is to rely on the official State of California guidance for accurate updates on state tax rules, penalties, and payment plan agreements.
California FTB Tax News, April 2025
FTB Payment Plans Overview
FTB Interest and Estimated Penalty Rates
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