Brotman Law Presents
The Ultimate Guide to the Employment Development Department (EDD) Collections
Introduction to EDD Collections
What is California’s largest tax collection agency? The Employment Development Department, handling the collection, accounting, and auditing of payroll taxes, in addition to maintaining employment records for nearly 17 million California workers.
If you own and run a business in California, you are responsible for paying payroll taxes and filing periodic reports in accordance with your obligations. If you do not do so, you risk having a lien recorded against your property by the EDD.
I have worked with people that have had some issues understanding the details of how tax liens work. This makes it all the more important to understand what a lien is, why they are issued, and what your options are to avoid or discharge one.
What is the EDD?
The Employment Development Department (EDD) is one of the largest state departments in California. As stated before, this department has a broad range of responsibilities, including collecting employment-related taxes, the distribution of unemployment benefits, disability benefits and my area of focus – payroll tax.
The EDD also has enforcement powers which allow it to investigate and pursue payment from businesses when it believes that those taxes are being avoided by employers.
If taxes are owed or quarterly statements are not submitted, the EDD sends out an Employer Account Statement setting out the liability and requiring that the oversight be rectified.
If you do not file and pay the liability in a timely manner, the EDD can record a State Tax Lien.
The EDD differs from other state organizations in its process. The Franchise Tax Board, for example, may serve a notice requesting a return or payment for taxes, and the Board of Equalization serves Demands for Tax Payments. These carry different obligations from an EDD lien.
A lien is an enforceable document which allows the department to record an interest over both the real and personal property of the debtor in the amount of the unpaid taxes plus any penalties and fines that have accrued to the debt.
It does not allow the EDD to seize assets, but acts like a recorded mortgage: the EDD has rights to that property that come before other interests. This means that the taxpayer cannot, for example, sell their house or their car unless the lien is paid in full.
The existence of the lien is a matter of public record, it can be viewed by anyone and may seriously affect your personal credit rating. Although the EDD does not directly provide lien information to credit reporting agencies, the information is discoverable with a county search.
The amount of a lien is not adjusted, so if you make a partial payment to reduce your liability, the lien amount will stay the same as the whole payment. The lien also continues to exist even if you file for bankruptcy.
Delinquent Payroll Taxes May Cause Insomnia
Not making your payroll taxes is no joke! A recent court case in San Diego County involved a local home builder/business owner who failed to report his payroll for approximately 130 employees to the EDD and to SCIF for Worker’s Compensation Insurance in the amount of $104,380 plus $256,703 to the State Compensation Insurance Fund (SCIF).
He was convicted of two felony counts for his violations of the Unemployment Insurance Code and was ordered to serve three years of probation in addition to possible full restitution of the funds.
If you’re a small business owner and have employees but have neglected to make your payroll taxes on a regular basis, give me a call before or after the EDD reaches out to you. I will help you work through your payroll tax issues and be your advocate.
There are usually mitigating circumstances in a payroll tax story. I can work with the EDD on your behalf and if necessary, negotiate a program that will help you get some sleep at night.
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What's Covered in This Guide
In the remaining chapters of this section, we will delve into:
EDD Liens and Levies
Chapter 1 discusses what EDD liens are and that they should not be taken lightly. We will explain what an EDD lien is and how they work. The next step is how to pay off the lien and get it released. Finally, we will talk about what to do if you receive a notice of an EDD lien and some steps you can take to avoid having this action taken against you. We will also discuss an EDD Notice of Levy and how that works.
What to Do If the EDD Takes Your Money
This is when things start to get serious. Chapter 2 outlines the measures the EDD can take to collect the money you owe. These include withholding overpayments, the treasury offset program and wage garnishments. We will also talk about some of the other ways that the state can take your money, such as withholding any state income tax refunds owed to you.
California Payroll Tax Appeals
Appealing payroll tax rulings can be an intense legal process and the best outcome is that the deadline for payment may be extended. In this chapter, we will discuss the process from the initial notice all the way through superior court. We will also talk about payroll tax settlements, which could reduce the amount you owe, and how to apply for one.
EDD Installment Agreements
One stance the EDD takes is, “something is better than nothing.” In other words, they are more willing to work with the taxpayer in order to avoid a contentious collection or litigation process. Find out in Chapter 4, how you can apply for an installment agreement and how to qualify. We will also discuss the option of long-term installment agreements.
EDD Offer In Compromise
The EDD also has an Offer in Compromise program. You will need to find out how to qualify and go through the process to see if your tax debt can be reduced. This is a good option if you cannot pay the full amount, but want to stay out of bankruptcy court. Chapter 5 also discusses how the EDD can rescind an EDD lien and grounds for cancellation.
