Skip to content
English
Contact us
  • There are no suggestions because the search field is empty.

State Taxes vs. IRS Taxes: What Is Different and What Forms Are Involved

California business owners and individuals file two separate sets of tax returns each year — one with the IRS and one with California's Franchise Tax Board. They cover similar income but involve different agencies, different forms, different rules, and different payment systems.

Two Agencies, Two Systems

The IRS (Internal Revenue Service) is the federal tax authority. It administers the federal income tax across the entire country. Every US taxpayer files with the IRS regardless of state.

The FTB (Franchise Tax Board) is California's state tax authority. California residents and businesses with California income file with the FTB in addition to the IRS. These are two separate filings with two separate agencies — paying one does not satisfy the other.

The Forms

Federal (IRS):

  • Form 1040 — individual income tax return
  • Schedule C — sole proprietor business income, filed with Form 1040
  • Form 1065 — partnerships
  • Form 1120-S — S-Corporations
  • Form 1120 — C-Corporations

California (FTB):

  • Form 540 — individual income tax return
  • Schedule CA (540) — California adjustments, filed alongside Form 540
  • Form 565 — partnerships
  • Form 100S — S-Corporations
  • Form 568 — LLCs (all California LLCs file this, regardless of how they are taxed federally)
  • Form 100 — C-Corporations

The Big Differences

Tax rates: Federal individual rates range from 10% to 37%. California individual rates range from 1% to 13.3%, the highest state rate in the country. Most California business owners pay both on the same income.

Different deductions: The federal and California tax codes do not always match. Some deductions that reduce your federal taxable income do not reduce your California taxable income. Your California return may show a higher taxable income than your federal return even though the underlying income is the same.

The LLC $800 minimum tax: All California LLCs owe a minimum $800 franchise tax to the FTB each year, regardless of whether the LLC made any money. There is no federal equivalent. This is a California-specific cost of operating as an LLC.

Deadlines and extensions: Both federal and California returns are due April 15 for most individuals. California generally grants individuals an automatic six-month extension to file, and no separate California extension request is required. You do not need to file federal Form 4868 first to receive the California extension. Any California tax owed is still due by the original deadline, usually April 15. An extension gives you more time to file, not more time to pay. Estimate and pay your tax by April 15 to reduce penalties and interest.

Where payments go: Federal tax payments go to the IRS at irs.gov/payments or through EFTPS. California tax payments go to the FTB at ftb.ca.gov or through Web Pay. Sending a payment to the wrong agency does not credit your account with the other one. They are completely separate systems.

What to Do When Something Goes Wrong

You received a notice from the FTB but not the IRS (or vice versa).

These are separate agencies. A notice from one has no effect on your standing with the other. Address each notice independently. Contact your NCO advisor before responding to either one.

You paid your California taxes but the payment went to the IRS by mistake.

Contact your NCO advisor and let them know so we can record correctly for month end closing. The IRS will apply the payment to your federal account — it does not transfer to the FTB automatically. You will need to make a separate payment to the FTB to avoid a late payment penalty, and may need to request a refund from the IRS.

FAQ

Do I have to file a California return if I live in another state but earned money in California?

Yes. Non-residents who earn income from California sources — California real estate, California business operations, wages from a California employer — must file a California non-resident return (Form 540NR) with the FTB in addition to their home state and federal returns.

Is the California deadline the same as the federal deadline?

For most individuals, yes — both are due April 15, with an automatic extension to October 15. Taxes owed are still due April 15 regardless of whether you file an extension. California and federal extensions each apply only to their respective filings.

Why is my California tax bill higher than I expected?

California has the highest marginal income tax rate in the US. Rates exceed 9% at relatively modest income levels, and the 13.3% top rate applies above $1 million. California also disallows some federal deductions, which can increase your California taxable income compared to your federal taxable income. Your NCO advisor can break down your California versus federal liability side by side if you want to see the full comparison.