What happens if my business has an EDD liability?
The EDD collects payroll taxes. If a business has not paid its payroll taxes, an EDD assessment will try to collect the taxes either in a lump sum or via a monthly installment agreement based on the ability to pay of the business. The EDD will often try to assess tax liability of the business to assessing the liability of the business to the owners of the business.
Who is liable for the EDD personal assessment?
Similar to the IRS trust fund recovery penalty, the EDD will assess responsible parties who willfully do not pay the tax liability. Section 1735 of the Unemployment Insurance Code (CUIC) states:
- Any officer, major stockholder, or other person, having charge of the affairs of a corporate, association, registered limited liability partnership or foreign limited liability partnership, or limited liability company employing unit, who willfully fails to pay contributions required by this division or withholdings required by Division 6 (commencing with Section 13000) on the date on which they become delinquent, shall be personally liable for the amount of the contributions, withholdings, penalties, and interest due and unpaid by such employing unit. The director may assess such officer, stockholder, or other person for the amount of such contributions, withholdings, penalties, and interest.
There are two requirements for a person to be subject to this personal assessment. First, they must be a responsible party, which means that the person must have responsibility for the finances of the business. Second, the person must willfully fail to pay the taxes. This could be merely paying other liabilities ahead of the EDD. This assessment is a dollar for dollar assessment to the individual whereas the IRS only personally assesses the trust fund portion of the employment taxes to the individual.
EDD personal assessment procedures
The EDD will send a questionnaire to potentially liable individuals. The questionnaire will ask if the individual is responsible for the financial matters of the corporation, and it will ask questions to determine if the individual willfully failed to pay the EDD. If the EDD makes a determination to assess the individuals, then it will send a letter to the individual indicating that the EDD is proposing an assessment and giving the individual an opportunity to appeal the determination.
If you have questions about EDD audit procedures and tax collections procedures, contact the EDD tax attorneys at Disparte Tax Law for a free, confidential consultation.