Franchise Tax Board interest and penalty rates for 2026: the California table practitioners use.

The Franchise Tax Board charges 7% a year, compounded daily, on personal income tax and corporation tax underpayments for July 1 to December 31, 2026, and it announced in September that the rate stays at 7% for January 1 to June 30, 2027. The same 7% is paid on personal income tax overpayments and is the rate for the estimated tax penalty; corporation overpayments earn 4%. California sets the rate twice a year under Revenue and Taxation Code 19521, from the federal rate in effect six months earlier, so it can differ from the IRS rate for the same quarter. The penalties stack on top: a late filing penalty of 5% of the unpaid tax for each month or part of a month, up to 25%, counted from the original due date once a return misses its extended due date; a late payment penalty of 5% plus 0.5% a month, up to 40 months and 25% in total, which FTB charges only to the extent it exceeds the late filing penalty for the same year; a 25% penalty for ignoring a demand to file; and $18 per owner per month, for up to 12 months, on a late S corporation, partnership or LLC return. An individual can ask once in a lifetime for a one-time abatement of the late filing and late payment penalties for taxable years beginning on or after January 1, 2022.

Everything below is taken from FTB’s interest rate page, its common penalties page, its penalty reference chart (FTB Pub. 1024, revised January 2026), its one-time abatement page, its Manual of Audit Procedures chapter on interest, the September 2026 issue of Tax News, the Revenue and Taxation Code, and the IRS quarterly rate pages, each read October 21, 2026 and linked at the end. The June 15 payment rules for the elective tax on pass-through entities are in the PTE elective tax article; the FTB penalty for an unregistered tax preparer is in the CTEC article.

What is the FTB interest rate for 2026 and 2027?

Seven percent, for every period from July 1, 2025 through June 30, 2027. FTB publishes one rate for personal income tax underpayments and overpayments, corporation underpayments and the estimate penalty, and a separate, lower rate for corporation overpayments. The table is FTB’s, with the January to June 2027 row from the September 2026 Tax News, which announced it before the rate page was updated.

FTB’s page carries the series back to 1976, when the rate was 12%; the peak was 18% from May 27 to December 31, 1982. The next rate, for July 1 to December 31, 2027, will come from the rate for January 2027 under section 19521. FTB announces each rate months ahead in Tax News: the July 2025 rate in the April 2025 issue, the July 2026 rate in February 2026, and the January 2026 and January 2027 rates in the September issues of 2025 and 2026.

One source of confusion is the California Department of Tax and Fee Administration, which runs sales and use tax and publishes its own interest table. Its rate on deficiencies is 10% for 2026 and the first half of 2027. It applies to sales and use tax and the other CDTFA programs; an FTB notice uses the FTB rate.

Estimate the interest and penalty on a late California balance

Four inputs: the tax that was unpaid on the original due date, the due date, the date it is paid, and whether the return was filed by its extended due date. The estimate is for an individual return with the automatic six-month extension, and it uses the FTB rates above.

Why is the California rate different from the IRS rate?

Because California resets it twice a year and the IRS resets it every quarter. Section 19521 adopts the federal formula in Internal Revenue Code 6621, which for individuals is the federal short-term rate plus three percentage points, but changes the timing: the rate for January applies during the following July through December, and the rate for July applies during the following January through June. The effect is a California rate that follows the IRS rate in effect six months earlier and ignores the quarters in between. In 2026 the IRS charged individuals 7% in the first quarter, 6% in the second and 7% in the third and fourth. California charged 7% all year, because the IRS rate in July 2025 and in January 2026 was 7%; the IRS’s 6% second quarter did not apply in California.

Two other differences follow from the statute. For individuals California pays the same rate on an overpayment as it charges on an underpayment, as the IRS does. For corporations California pays the lesser of 5% or the bond-equivalent rate of 13-week Treasury bills at the first auction in January (for the following July to December) or July (for the following January to June), rounded to a full percent; that is why a corporation that overpays earns 4% from FTB and 6% from the IRS in the fourth quarter of 2026. And the federal rule in IRC 6621(d) that nets interest on overlapping overpayments and underpayments does not apply in California.

How does FTB compute the interest?

Daily compounding, from the date the payment was due, on the whole balance. Section 19521(b) requires interest to be compounded daily, and FTB’s audit manual lists what it compounds on: unpaid tax and LLC fees, interest itself, and all penalties except the monthly portion of the late payment penalty. The details that change the number on a notice:

• The start date ignores the extension. Tax is due on the original due date, April 15 for individuals and March 15 for calendar-year S corporations and partnerships (March 16 in 2026, because the 15th was a Sunday). The automatic extension moves the filing date, not the payment date, and interest on the tax runs from the original date.
• Interest on penalties starts on different dates. The audit manual puts interest on the late filing penalty from the due date of the return, interest on the 5% part of the late payment penalty and on accuracy-related penalties from the due date including extensions, and interest on other penalties from the date of the notice. The 0.5% monthly part of the late payment penalty carries no interest under section 19132(f).
• A notice paid within 15 days stops the clock. If the whole assessment is paid within 15 days of the original notice, FTB charges no further interest after the notice date.
• The estimate penalty is not compounded. Section 19521(b)(2) excludes the additions to tax for underpaid estimates (sections 19136 and 19142) from daily compounding. FTB computes them as the number of days late times the rate for the period.
• Interest can be suspended for an individual who filed on time. If FTB does not issue a notice of proposed assessment within 36 months of the later of the original due date or the date a timely return was filed, interest stops from the end of that period until 15 days after the notice (section 19116, as the audit manual describes it). A return filed after the extended due date gets no suspension.

Interest itself is rarely removed. FTB treats it as a charge for the use of money, not a penalty, and section 19104 allows abatement only for an error or delay in a ministerial or managerial act by an FTB or IRS employee, after FTB has contacted the taxpayer in writing, and with no significant part of the delay attributable to the taxpayer. The request is made on FTB 3701; a timely examination is not a delay.

The FTB penalties practitioners see most

The full list is FTB Pub. 1024, which pairs each California section with its federal counterpart. These are the ones that appear on individual, S corporation, partnership and LLC notices in a tax practice, with the amounts FTB published for 2026.

Preparer penalties sit in the same article of the code: $50 per failure, up to $25,000 a year, for not furnishing a copy of the return, omitting the preparer’s identifying number or not keeping copies for three years (19167(a)(1) to (3)), $250 or more for an understatement from an unreasonable position (19166), $500 per failure of earned income credit diligence (19167(a)(5)), and $2,500 for a first failure to register with CTEC and $5,000 after that (19167(a)(4)), which the CTEC article covers.

What happens when a return misses the October 15 extension?

The late filing penalty jumps to its maximum. Section 19131 measures the penalty for each month or part of a month “between the due date of the return (determined without regard to any extension of time for filing) and the date on which filed.” California’s extension is automatic and needs no form, and a return filed within it owes no late filing penalty. A return filed after it is measured from April 15, not from October 15. An individual 2025 return with tax unpaid, filed on October 16, 2026, is six months and one day past the original due date, which counts as seven months; 35% exceeds the cap, so the penalty is 25% of the unpaid tax.

The second rule is the coordination between the two timeliness penalties. Under section 19132(b), the late payment penalty is not charged where the late filing penalty (with any demand penalty) for the same year is equal or larger, and where it is larger only the excess is charged. The effect is that FTB charges the larger of the two, not the sum. The federal rule runs the other way: the IRS reduces the failure to file penalty by the failure to pay penalty for the months both apply. The amounts differ too: the federal minimum for an individual return more than 60 days late is $525 for returns due after December 31, 2025, against California’s $135, and the federal penalty for a late S corporation or partnership return is $255 per owner per month, against California’s $18.

For an S corporation or a partnership the per-owner penalty is the one that grows. A calendar-year S corporation’s 2025 return was due March 16, 2026, with an extension to the 15th day of the ninth month; a partnership’s or LLC’s extension runs to the 15th day of the tenth month. Three shareholders and a return filed four months late cost $18 times three times four, $216, before the separate late payment penalty on the $800 minimum franchise tax or any tax due.

How does the California estimated tax penalty work?

California splits the required annual payment into 30% on April 15, 40% on June 15, nothing on September 15 and 30% on January 15 of the following year. For 2026 the dates are April 15, June 15 and September 15, 2026 and January 15, 2027. The required annual payment is the smaller of 90% of the current year’s tax or 100% of the prior year’s; an individual whose prior-year California adjusted gross income exceeded $150,000 ($75,000 married filing separately) uses 110% of the prior year’s tax, and one with current-year AGI of $1,000,000 or more ($500,000 married filing separately) must base the estimates on the current year. No estimates are required below $500 of tax after withholding and credits ($250 married filing separately).

The penalty is computed on each underpaid installment from its due date to the date it is paid or the return due date, whichever comes first, at the rate in the table: the days late times the rate for the period, without compounding. It is figured on form FTB 5805 (FTB 5805F for farmers and fishermen) and can be reduced by annualizing uneven income. Filing the 2026 return by January 31, 2027 and paying the balance replaces the fourth installment and removes the penalty for it.

How do you get an FTB penalty removed?

Two routes, and they are different in who can use them and what has to be shown.

Reasonable cause. Most penalties in the table carry a reasonable cause and not willful neglect exception. FTB’s help page asks the taxpayer to pay the full amount and file a claim for refund with the notice and supporting documents, on FTB 2917 for individuals and fiduciaries or FTB 2924 for business entities. Section 19131(f) adds a presumption that helps when the IRS has already agreed: if both returns were late, FTB’s assessment is based on a final federal determination, and the IRS found reasonable cause for the federal late filing penalty, the California late filing penalty is presumed not to apply unless FTB proves otherwise.

One-time abatement, individuals only. Assembly Bill 194 added section 19132.5 in 2022. It cancels a timeliness penalty, which means a late filing penalty under 19131 or a late payment penalty under 19132 for one taxable year, for taxable years beginning on or after January 1, 2022. The conditions: the individual has not been granted a one-time abatement before (or had no prior California filing requirement), has filed every required return, and has paid everything else due or is current on an installment agreement. A penalty previously abated for reasonable cause does not count as a prior use. FTB’s page calls it a once-in-a-lifetime abatement and excludes fiduciaries, estates and trusts. It can be requested by phone at 800-689-4776 (a representative with a power of attorney selects the POA option), through MyFTB chat or a secure message, or on FTB 2918; where the balance including the penalty has already been paid, the request goes in writing or on FTB 2918 as a claim for refund.

Section 19132.5 allows the one-time request either after a reasonable cause request has been considered and rejected, or in place of one. It can be used once, so where the facts support reasonable cause, that request goes first and the one-time abatement stays available for a later year.

Where these rates show up in a practice owner’s own books

Most of this page is client work, but two items belong to the practice itself. The firm’s own entity, whether an accountancy corporation taxed as an S corporation (Form 100S) or a partnership or LLC (Form 565 or 568), carries the same $18 per owner per month penalty, the same late payment rules on its $800 minimum tax, and the 10% penalty on an underpaid LLC fee estimate. And when a practice changes hands, Pub. 1024 lists a separate exposure under section 18669 for a successor in a sale, transfer or disposition of a business that fails to pay required amounts or to withhold or pay withheld amounts: 10% of the amount not paid, or personal liability for amounts not withheld. That is why the entity’s FTB account history belongs on a buyer’s diligence list. The tax side of the sale itself is in how the sale of an accounting practice is taxed.

Sources

• Franchise Tax Board, Interest and estimate penalty rates (updated June 22, 2026): current rate for July 1 to December 31, 2026 and the series back to 1976. FTB Tax News, September 2026: the 7% and 4% rates for January 1 to June 30, 2027; February 2026 and September 2025 issues for the earlier announcements. Read October 21, 2026.
• FTB, Common penalties and fees (updated June 17, 2026): late filing, per-owner, demand, late payment, estimate, dishonored payment, e-pay and LLC fee penalties, and the 2026 collection, filing enforcement and offset fees. FTB Pub. 1024, Penalty reference chart (revised January 2026).
• FTB Manual of Audit Procedures, chapter 12, Interest: daily compounding, interest on penalties, the 15-day rule, interest abatement under section 19104, suspension under section 19116.
• FTB, One-Time Penalty Abatement (updated June 22, 2026), Help with penalties and fees, and forms FTB 2917, FTB 2918 and FTB 2924.
• Revenue and Taxation Code 19131, 19132, 19132.5 and 19521.
• FTB, Due dates: personal, Due dates: businesses, and the 2026 Instructions for Form 540-ES: installment percentages, the 90%, 100% and 110% rules, the $1,000,000 AGI rule, mandatory e-pay thresholds and the January 31 early filing option.
• IRS, Quarterly interest rates, IR-2026-98 (August 21, 2026) and Failure to file penalty: the 2026 quarterly rates, the $525 minimum and the $255 per-owner base rate. California Department of Tax and Fee Administration, Interest Rates, for the separate sales and use tax rate.

This article is general information for California practitioners and practice owners and is not tax or legal advice. Penalty and interest amounts on any account should be taken from the FTB notice or MyFTB, and abatement requests should be prepared from the facts of the client’s case.

About the author Denis Shulga, CPA, EA

Denis is a practicing tax and accounting professional and the principal of VistaTax, a practice serving individuals and closely held businesses: individual and business tax preparation, tax planning, bookkeeping, financial reporting and payroll. As WIN’s founding CPA he anchors the licensed side of the structure and sits at the table for every transition. More about WIN’s team.