Skyrocketing home values in California have led to numerous state law reforms that impact your property tax bill over the past few decades. Property owners in California typically pay an annual tax bill, often in two payments through an impound account established with their mortgage lender.
However, some property owners will also need to pay a supplemental property tax bill under specific circumstances, generally triggered by a reassessment of the property value due to a transfer of property to a new owner or the completion of new construction.
Since tax laws can change, you should verify all information with official sources, such as the California State Board of Equalizations page about the topic.
When you’ve just bought your dream home, the last thing you want is unexpected bills showing up in your mailbox. Yet many new homeowners find themselves confused and worried when they receive supplemental tax bills that weren’t part of their initial budget planning. If you’ve recently purchased a property and are wondering whether your escrow account covers these supplemental charges, you’re not alone. Let’s dive into what these bills are and who’s responsible for paying them.
What Exactly Is a Supplemental Tax Bill?
A supplemental tax bill is an additional property tax charge that typically arrives after you’ve purchased a new home. It represents the difference between what the previous owner paid in property taxes and what you should be paying based on your home’s new assessed value.
For example, if the previous owner bought the house in the 1980s for $150000, they might have been paying annual property taxes of around $2,000. If you purchased that same property for $600000, your annual taxes would be closer to $7,500. The supplemental bill covers that $5,500 difference for the portion of the tax year that you’ve owned the property.
Does Your Escrow Account Cover Supplemental Tax Bills?
Here’s the important part that catches many homeowners by surprise:
Supplemental tax bills are generally NOT paid out of your escrow account.
Even if you have an impound or escrow account where your lender collects monthly amounts for property taxes, most lenders do not automatically pay supplemental tax bills This is because
- Supplemental bills are sent directly to the homeowner, not to the mortgage company
- These bills aren’t part of the regular tax schedule that lenders plan for
- The amount can vary significantly based on when you purchased and the value difference
Why Do Supplemental Tax Bills Exist?
The main reason for supplemental tax bills is timing Property assessments and tax rolls are updated on specific schedules that don’t always align with real estate transactions
In Los Angeles County, for example, tax bills are set on July 1st, but calculations end in March. If you purchase a home after March 31st, the county has already closed their books for that tax cycle using the seller’s assessment value. The supplemental bill is their way of collecting the proper amount based on your purchase price.
When Will You Receive a Supplemental Tax Bill?
Typically, supplemental tax bills arrive 3-6 months after your purchase. The timing can vary depending on:
- Your county’s assessment schedule
- The backlog at your local assessor’s office
- When during the tax year you purchased your property
What Happens to the Money in Your Escrow Account?
If you have an impound/escrow account, your lender will have been collecting money monthly for property taxes. When the regular tax bill arrives (at the previous owner’s rate), the lender will pay that amount.
For the supplemental bill, one of two things typically happens:
- The lender keeps the escrow account at the higher amount needed for future tax bills
- The lender refunds the excess money to you so you can use it to pay the supplemental bill yourself
Who Has to Pay the Supplemental Tax Bill?
Unfortunately, it’s your responsibility as the new homeowner to pay supplemental tax bills directly. The good news is that these bills usually come with different due dates than your regular tax bills, giving you some time to prepare.
Tips for Handling Supplemental Tax Bills
If you’ve recently purchased a home or plan to soon, here are some smart ways to prepare for supplemental tax bills:
- Budget for it: Set aside extra funds based on the expected difference between the seller’s tax amount and your likely new amount
- Contact your county assessor: They can often provide an estimate of what your supplemental bill might be
- Ask your mortgage broker: An experienced broker like Athena Paquette can explain the supplemental tax process in your area
- Check your mortgage statement: Review whether you have impounded taxes and how much is being collected monthly
- Keep an eye on your mail: Supplemental bills are sent directly to you, so don’t mistake them for junk mail
Why This Matters in California
California homeowners in particular need to be aware of supplemental tax bills because of Proposition 13, which limits property tax increases for existing owners. This creates larger gaps between what previous owners paid and what new owners will pay, resulting in potentially significant supplemental bills.
What Happens After the First Year?
The good news is that supplemental tax bills are typically a one-time occurrence. By the following tax year, the county assessor’s records will be updated with your property’s new value, and you’ll receive a single “consolidated” bill that reflects the correct assessment.
Your lender will adjust your escrow/impound account accordingly to ensure enough is being collected each month to cover the full tax amount going forward.
Different Types of Mortgage Loans and Tax Requirements
It’s worth noting that different loan types handle property taxes differently:
- FHA and VA loans: Monthly tax payments in an escrow account are mandatory
- Conventional, Fannie Mae, and Freddie Mac loans: Monthly impounded taxes are optional
If you’re not sure whether your taxes are being impounded, check your monthly mortgage statement or contact your lender.
Real-Life Example
Let me share with you a scenario I encountered with one of my clients last year. They purchased a home in Torrance for $850,000 that the previous owner had bought for $220,000 back in 1992. Six months after moving in, they received a supplemental tax bill for nearly $7,800!
They called me in a panic thinking there was some mistake. I explained that this was normal and helped them calculate that the difference between the previous owner’s tax bill ($2,750) and their new expected bill ($10,625) was about $7,875 – almost exactly matching their supplemental bill.
We contacted their lender and found they had enough in their escrow account to cover part of this bill, and they needed to budget for the remainder. The following year, their escrow account was properly adjusted to collect the full amount needed for taxes, and they never received another supplemental bill.
When to Seek Help
If you’ve received a supplemental tax bill that seems unusually high or you’re struggling to understand how it was calculated, consider:
- Contacting your county assessor’s office
- Speaking with your mortgage broker
- Consulting with a tax professional who specializes in property taxes
The bottom line is that escrow accounts typically do NOT pay supplemental tax bills. As a new homeowner, you should anticipate receiving these bills and plan accordingly. Understanding this process before buying a home can help you avoid financial strain and budget more effectively for your first year of homeownership.
Remember that while supplemental tax bills might feel like an unwelcome surprise, they’re a normal part of the property transfer process. By the second year of ownership, your tax situation will normalize, and your escrow account (if you have one) will be properly aligned with your actual tax requirements.
Have you received a supplemental tax bill after buying your home? What was your experience handling it? I’d love to hear your stories in the comments below!
Do Escrow Accounts Pay Supplemental Tax Bills?
Generally speaking, it is uncommon for funds from escrow accounts to cover supplemental property tax bills. If youre a first-time homebuyer, its important to keep this in mind when calculating the cost of homeownership.
What Are Supplemental Taxes?
A supplemental tax is a separate property tax bill from your annual tax bill. These supplemental property tax bills are calculated based on the difference between the newly assessed value of your property and the prior assessed value.
Typically, supplemental real estate tax bills are triggered by one of two scenarios:
- A newly constructed property is completed.
- The property has a new owner.
Note that “new construction” also includes significant improvements, additions or alterations that add value to a property.
A supplemental tax bill could take weeks or months to arrive after your new property is completed or you take ownership of a property, since it depends on the workload of the county assessor’s office and the county tax collection office.
A county assessor must appraise your property and provide you with information about the valuation and the supplemental assessment amount. Often, the supplemental property tax bill will be issued within six months from the date your escrow closes, or your new home is complete. However, its important to remember that this timeframe can vary considerably for each property owner.
SUPPLEMENTAL PROPERTY TAX | PROPERTY TAX ESCROW
FAQ
Are supplemental taxes paid by escrow?
Supplemental assessments and taxes are in addition to the annual assessments and property taxes which are generally prorated during escrow, so that the seller …
Is a supplemental tax bill paid by escrow on Reddit?
But California sneaks this additional tax thing called “supplemental tax” and that is not paid out of escrow when you first purchase a house. If you have not paid the “supplemental tax” then you will have to pay that part out of your pocket, escrow doesn’t touch it.
What taxes does my escrow pay?
When you purchase or refinance a home, your lender will establish an escrow account to pay for property taxes and homeowners insurance, as well as other expenses like flood insurance and private mortgage insurance (PMI). Every time you make a mortgage payment, part of it will go into the escrow account.
How often do you pay supplemental property tax in California?
You will receive one Supplemental property tax bill from the date of the change in value through June 30 (end of fiscal year). You may receive an additional Supplemental property tax bill for the change in value from July 1 through June 30 of the following fiscal year.
