Chapter 02
What Should You Do If the EDD Takes Your Money
Any notification of a tax payment due when you’re not expecting it, or even if you know taxes are past due but have been hoping to “keep the wolves at bay,” eventually must be dealt with.
There have been cases where it takes years for a taxing authority like the EDD to catch up with the delinquency, but don’t count on it. Even if you “luck out,” and avoid paying what’s due for a while, once they catch up, there will be penalties and interest tacked on to your growing tax debt.
In addition, the California Employment Development Department can legally withhold money owed to you by the state for repayment of debt. In other words, either through error or willful action, you owe a monetary debt to the State of California.
The EDD is within its legal rights to withhold money from a variety of programs and tax refunds if you do not pay up. It works with the California Franchise Tax Board, the State Lottery, and the State Controller to collect the outstanding debt.
Before you imagine yourself as the unfortunate character of the comedy trope getting pulled up by the ankles and shaken until coins come tumbling out of your pockets, it might be a good idea to call a tax attorney.
We can take a look at the situation and figure out the best and least expensive way to get you back in business.
Did You Receive a Notice of Overpayment?
The Central Collection Division collects tax accounts receivable and benefits overpayments for the EDD. It is highly automated, and there are over 30 tax offices throughout California. The official tax collector is called a Tax Compliance Representative or Tax Rep.
Any contact by the EDD or Central Collection Division will be made by phone or postal mail. If you receive a notice, do not ignore it. Begin working with the Tax Rep and an attorney to determine if you truly owe the state repayment and, if so, how you will pay it back.
The EDD much prefers to work out a solution to the problem without resorting to enforced collection methods.
However, if you cannot or do not:
- Prove you owe the EDD nothing OR
- Pay the entire amount in full OR
- Enter into an installment agreement or an Offer in Compromise OR
- Qualify for a hardship suspension
… the EDD will forcibly collect the debt through a variety of means. Not even bankruptcy will save you.
Wage Garnishment
Also called a wage attachment, wage garnishment is an order sent to your employer from a court or government requiring the employer to withhold money from your paycheck to be sent directly to the creditor.
Depending on the type of debt, different rules apply as to the amount allowed to be garnished.
Before your wages can be garnished, the creditor usually must obtain a court judgment stating you owe money. That is not true for all creditors. The state can garnish your wages without the benefit of a court order for:
- Overpayment of unemployment insurance and state disability insurance you were ineligible to receive
- Unpaid income taxes
- Court ordered child support
- Child support arrears
- Defaulted student loans
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Limits on Garnishment
You are supposed to be left enough for living expenses. To protect that amount, limits have been placed by Federal law on how much of your paycheck can be garnished.
Creditors may garnish the lesser of two amounts:
- 25 percent of your disposable earnings
- The amount by which your weekly disposable earnings exceed 30 times the federal minimum wage
The State of California follows the 25% rule but uses the amount your earnings exceed 40 times the state minimum wage.
Example
|
FEDERAL |
STATE |
|
You earn $1000 a week |
You earn $1000 a week |
|
Disposable earnings are $700 after required deductions |
Disposable earnings are $700 after required deductions |
|
Current Federal minimum wage is $7.25 per hour |
Current State minimum wage for California is $12.00 per hour |
|
$7.25 X 30 = $217.50 |
$12.00 X 30 = $360 |
|
$700 X 25% = $175 |
$700 X 25% = $175 |
|
You can be garnished up to $175 OR $482.50 ($700 – $217.50) per week, whichever is less |
You can be garnished up to $175 OR $340 ($700 – $360) per week, whichever is less |
If you do the same calculations using a 40-hour week and compare Federal minimum wage versus California state minimum wage, the amounts available for garnishment are thus:
|
FEDERAL |
STATE |
|
40 X $7.25 = $290 |
40 X $12 = $480 |
|
After required deductions net wages are $261 |
After required deductions, net wages are $220 |
|
$261 X 25% = $65.25 |
$220 X 25% = $55 |
|
30 X $7.25 = 217.50; $261 – $217.50 = $43.50 |
40 X $12 = $480; $220 – $480 = (260), practically speaking: $0 |
|
You would be garnished $43.50, which is less than $65.25. |
The creditor could not garnish your wages in this situation |
If you are in arrears for child support payments, defaulting on a student loan, or have unpaid taxes, the percentages and amounts are different for each instance.
However, your total garnishment is held at 25 percent. If your employer is already garnishing 15 percent of your wages per government order and receives a second order for 20 percent from another creditor, the second creditor will receive no more than 10 percent (15 percent + 10 percent = 25 percent).
Employers who receive wage garnishment orders must begin withholding wages on the first workday at least 10 days after service of the order. The order remains effective until it is paid off or removed.
The priority for Earnings Withholding Orders is as follows:
- Court Order Assigning Salary/Wages(for support), and Earnings Withholding Order (EWO) for Support
- Earnings Withholding Order for Taxes
- Earnings Withholding Order
An EWO served by court order takes precedence over other wage garnishments. If a residual amount of the maximum available amount of disposable earnings remains after the employer withholds the amounts required by the court ordered EWO, the CDTFA’s EWOT may capture the remaining residual amount.
Treasury Offset Program
The Treasury Offset Program (TOP), is a tax refund reduction program run by the IRS and/or the EDD. If you have been paid unemployment insurance or state disability insurance for which you were not eligible, you will receive a Notice of Overpayment mailed to you.
It shows the amount of overpayment and any penalties, explains why you were overpaid, and provides information on your rights of appeal.
For non-fraud overpayment, you are not at fault for receiving the overpayment. You may still be ordered to repay, or you may not be required to repay, depending on circumstances.
For fraudulent overpayment, where you knowingly gave false information or withheld information, you have received the benefits illegally, and you can be prosecuted and be penalized 30 percent of the amount of overpayment and a false statement disqualification of 5-to-24 weeks in which you will not be eligible for benefits. You must also pay the overpayment and the penalties.
Other Methods of Withholding State Money
Money may be deducted from your future weekly unemployment or state disability benefits by the EDD
- The Franchise Tax Board may withhold all or a portion of your California state income tax refund.
- The unemployment insurance overpayment debt may be referred to the IRS, which will reduce or withhold any Federal income tax refund.
- The State Lottery may be notified to withhold all or a portion of any state lottery winnings.
- The State Controller may be notified to reduce or withhold any funds from unclaimed property
The EDD may resort to filing a claim against you in court. You would be charged for the court costs plus interest and a lien recorded on your property.
Remedies for Withheld State Money Owed You
The most important thing to do is to secure an attorney and communicate with the assigned tax collector as soon as possible after receiving notification of overpayment or other debt.
The tax collector may be the one to determine resolution; you will not face a judge or a jury. You will be in deeper trouble if you try to evade the tax collector. Engage the services of an attorney, so the underlying validity of the assessment is investigated.
The attorney will ask:
- Was the debt statute barred when it was issued?
- Was the assessment issued according to proper internal EDD procedure?
If the EDD did not follow procedure, you owe nothing. As you can see, the EDD has multiple methods of taking your money if it believes you have received benefits you should not have, all perfectly legal. However, it does not necessarily follow that they are right.
You Owe, You Owe, So Call a Tax Lawyer You Know
Always respond as soon as possible to notifications of government debt, but get a lawyer in your corner to make sure the assessment is valid and to guide you through the repayment process if you are not able to pay in full.
Owing money is almost never funny, but before or after sobbing (or cursing) aloud and kicking the nearest tree, give me a call. The team at Brotman Law can help you. We have extensive experience dealing with California state tax authorities and keeping our clients’ pockets from being emptied.
