What Do EDD Auditors Look for in a Payroll Tax audit? So 88 auditors are looking for for things in the context of a payroll tax audit and there they seem simple but there's a lot of nuances to them number one they're looking for taxable wages that were reported so they're verifying that the information that was given to the EDD was in fact the amount of taxable wages that were paid and it's consistent with reporting to the IRS number two they're looking for the amount of tax paid so same thing they're looking for consistency and the tax that was paid and the text that was reported to EDD number three they're looking for payments that could be potentially reclassified as taxable wages so this is the point where they look at officer compensation they look at any payments that are on your general ledger that were issued to workers that may be considered taxable wages they look for personal payments that should be reclassified as taxable wages that's what the EDD is doing when they're going through the general ledger analysis the last thing that they're looking for is they're looking for any Mis classification issues through reviewing all the outside workers that the company has any vendors and they're making sure that there are not taxable employees so there's a fairly thick analysis that goes through that process there's a lot of digging particularly on the last three items with a general ledger and the misc classification issues of the EDD ghoster but that's what the auditor looks for as they go through the payroll tax audit process.