Employment Development Department: Consequences and Resolution Options for California Payroll Taxes
California's Employment Development Department (EDD) administers payroll taxes in the State of California. If you have employees, you must file payroll tax returns and pay taxes to this department. Failure to do so can lead to penalties, tax liens, levies, and business closure.
This guide provides an overview of EDD payroll taxes, and it has links to resources with more information.
California Employment Taxes
California requires employers to file returns and remit payments for the following employment taxes:
- Employment training tax (ETT) — Employers pay this tax which pays for worker training in specific industries.
- Unemployment insurance (UI) — This employer-paid tax covers unemployment payments for people who lose their jobs through no fault of their own.
- CA Personal income tax (PIT) — Workers pay their own CA personal income tax, but their employers must withhold it from their wages and remit it to the state. To figure out how much you should withhold, you should have your employees fill out a DE4 (Employee's Withholding Allowance Certificate) or use the information from their IRS W-4.
- State disability insurance (SDI) — This is another employee-paid tax withheld and paid by employers. It covers disability payments and Paid Family Leave benefits.
When you hire employees, you must register and set up an account with the EDD. Then, depending on the size of your business, the state may require you to file and pay semi-monthly, monthly, quarterly, or annually. You must file and pay California employment taxes electronically.
Due Dates for EDD Taxes
Unemployment insurance and employment training tax are due quarterly on the last day of the month following the end of the quarter or on the next business day if the last day of the month falls on a weekend or holiday. The due dates are April 30, July 31, October 31, and January 31.
Due dates for state income tax and state disability insurance vary based on how much you withhold and your deposit schedule for federal payroll taxes. If you withhold less than $350 in state income tax for your employees, your due dates are quarterly, as explained above. If you withhold between $350 and $500, your payments are due on the 15th of the month.
Regardless of how much you withhold, they're also due on the 15th if you deposit federal payroll taxes monthly, quarterly, or annually. If you must pay federal payroll taxes on the next business day, your due date is on the next business day if you withhold more than $500. For semi-weekly federal depositors who withhold more than $500 in state income tax, the due date is the following Wednesday if you pay your employees on Wednesday, Thursday, or Friday. It's the following Friday if you pay your employees on Saturday, Sunday, Monday, or Tuesday.
How to Pay EDD Taxes
You can file and pay EDD taxes using e-Services for Business. This online portal also allows you to register your payroll tax account, report new employees, and view notices and letters. You can also make a payment using the EDD's Express Payment feature — this option doesn't require you to set up an online account. You can pay with a check or credit card.
Alternatively, you can use the following options to pay EDD taxes:
- Federal/State Employment Taxes Bulk Transmissions
- ACH Credit — This is when you instruct your bank to send a payment to the EDD. In contrast, an ACH debit is when you use e-Services or Express Payments to set up an ACH payment from your bank to the state. Contact your bank to learn more.
- Credit Card — You can pay EDD taxes with a credit card on the ACI website. Select state payments, enter code 1501, and make a payment. You can call ACI at 1 (800) 272-9829 to make a credit card payment over the phone. You will also need to enter the 1501 jurisdiction code because this company processes payments for many different state tax agencies.
- Cash — To pay in cash, go to the PayNearMe website. Then, follow the prompts, and the website will give you a list of places where you can make cash payments for your EDD taxes.
Unfortunately, you cannot make EDD tax payments through the mail unless you obtain a waiver from the state. If you get a waiver, the state will send you payment vouchers, and you just need to mail them back with your payment.
California Employment Tax Audits
The EDD has the right to audit your payroll tax returns. Typically, the audit starts by looking at your payroll records for a test year. If the auditor discovers issues, they will look at three years worth of payroll records. If everything has been paid and filed correctly, the auditor will issue a no-change report.
If the auditor finds mistakes, they will let you know if you owe additional tax or are due a refund. You have the right to appeal if the audit results in a tax assessment.
What Happens If You Don't Pay California EDD Tax?
If you don't pay or file your EDD tax returns, the state can take a variety of collection actions against you. Here's an overview of the consequences.
Penalties for Paying CA Payroll Tax Late
The EDD assesses a 15% penalty if you pay your state payroll taxes late. For instance, if you owe $1,000, the penalty will be $150. Interest will also accrue on your balance.
If you don't pay payroll taxes, the state automatically generates a tax lien against you. The lien goes against all of your real and personal property. It lasts for 10 years, and it can be renewed.
An EDD levy is when the state takes your assets to cover your payroll taxes. The EDD can send DE 8005 (Notice of Levy) to your bank, clients who owe you money, and even your credit card processor. The DE 8005 will show how much you owe including interest, penalties, and collection costs, and the recipient must comply with the notice.
If the state levies your bank account, your bank must send all of the funds in your account up to the amount that you owe to the EDD. With an accounts receivables levy, the payer must send the funds to the state within five days of the date that they are due to you. If the EDD sends a levy notice to your credit card processor, the processor must send funds to the state. This levy lasts for one year, but it can be renewed.
Options When You Get Behind on Payroll Taxes
The state expects employers to stay current on their payroll tax obligations. However, in some cases, business owners fall behind, and if that happens, you may want to look into the following options.
Payment Plan for Delinquent EDD Payroll Taxes
The EDD accepts requests for installment plans on a case-by-case basis. To apply file EDD Form DE 927B (Installment Agreement Request) along with a good faith payment. If you can't pay off the tax debt within one year, you also need to submit a financial disclosure. Use Form DE 926B (Financial Statement) or Form DE 926C (Financial Statement for Businesses).
Offer in Compromise EDD
In limited cases, the EDD may accept an offer in compromise on payroll taxes. This is when the EDD agrees to accept less than the balance due. To apply, file Form DE 999A (Offer in Compromise Application) and be prepared to make a full financial disclosure.
To qualify, the business must be inactive, and out of business, the owner must not be able to afford to pay more than the interest plus 6.7% of the bill in a year, or the owner must not have any assets that could cover the tax liability. You can also apply for an offer in compromise if you are liable for EDD taxes and you no longer have a controlling interest in the business.
If you disagree with a notice of determination about an unemployment claim, you can appeal. You must appeal within 30 days of receiving the DE 1080CT (Notice of Determination or Ruling or the DE 1080M (Notice of Modification), but if you miss the deadline, the CA EDD may allow you to appeal if you have a good reason for the delay.
To appeal, file Form DE 1000M (Appeal Form) or write a letter to the EDD explaining why you disagree with the determination or modification.
Other CA Business Taxes
EDD taxes are not the only taxes business owners must pay in California. You may also need to remit sales and use tax or special taxes and fees to the CA Department of Tax and Fee Administration.
Get Help With EDD Taxes
Struggling with the EDD? Got behind on your payroll taxes and looking for options? Facing an EDD tax audit? Want help appealing an assessment or an unemployment determination? Then, you need an experienced CA tax professional.
Using TaxCure, you can search for CPAs, enrolled agents, and tax attorneys who have experience with the EDD. You can also narrow down your results based on your specific concern such as an audit or an appeal. Dealing with the EDD can be stressful, but a tax professional can help you get the best result possible for your situation. Reach out to a CA tax pro for a free consultation today.