Under California law, taxpayers have a legal obligation to report and pay contributions and withholdings when due. If a taxpayer becomes delinquent in the payment of amounts due, the Employment Development Department (EDD) will take appropriate action to collect the full amount immediately.
The EDD recognizes that sometimes it is in the best interest of the state and in the interest of a California taxpayer that EDD allows an installment agreement to liquidate over a period of time an amount owed by taxpayer.
A taxpayer can request installment agreement by phone, by letter or by completing and filing an Installment Agreement Request (DE 927B). Taxpayers must note that installment agreement will not prevent a Notice of State Tax Lien from being filed and that EDD will continue to offset any State agency and federal tax refunds during the payment period.
This means that EDD may still take away your potential state or federal tax refund as a payment toward employment tax owed. Any payment from these sources will be really additional payments on top of the payments taxpayer already makes according to installment agreement.
Installment agreements can be long-term or short-term. A short-term installment agreement may be established during initial contact by EDD if the tax liability is less than $25,000 for an active business or $10,000 for inactive.
The taxpayer must indicate verbally during conversation with EDD representative or in writing to EDD that he or she will pay the amount owed to EDD within one year (or 18 months for an audit assessment).
EDD staff or their supervisors have the authority to approve short-term installment agreements without engaging into any complicated process. However, installment agreement will not be approved for taxpayers with a history of multiple delinquencies and in cases involving fraud by taxpayer.
It is important to keep in mind that the start date for short-term agreement will be no more than 10 working days after a verbal agreement is established during conversation with EDD staff member.
EDD will establish long-term installment agreement only when a taxpayer is unable to pay the balance due within the time allocated and the amount to be paid by taxpayer is higher than limits for short-term agreement (over $25,000 for an active business and over $10,000 for inactive).
Naturally, EDD has higher requirements for long-term agreements than for short-term. To apply for a long-term agreement, a taxpayer will need to submit a written request in which he or she must explain how the tax liability was established, what action has been taken by taxpayer to resolve the liability, how taxpayer plans to keep current on future financial obligations to EDD (this applies only to EDD accounts which are active).
Taxpayer must submit financial information on business and on personal assets. For that purpose he or she generally must use a Financial Statement (DE 926B), used for individuals, or Financial Statement for Businesses (DE 926C) for employer who is a business entity.
If instead of filling out these forms taxpayer submits own financial statement, EDD will accept it, as long as information in taxpayer's own statement is sufficient to cover everything that is asked for in two mentioned EDD forms. In addition, a taxpayer must include what is called a good faith payment.
For more information about taxes and the California Employment Development Department read our "The Ultimate Guide to the Employment Development Department."