EDD Refund Offset Program

By Robert S. Schriebman

This time of the year you may be thinking about all of the uses you are going to make from your federal income tax refund. You are busy getting all of your tax paperwork together to give to your return preparer in hopes of getting that IRS refund as soon as possible. Do you owe the EDD? You may be in for a very unpleasant surprise. If you owe the EDD as a sole proprietor or if the EDD has assessed you as a responsible person for corporate-level employment and withholding taxes, you should know about the EDD Treasury Offset Program. Yes, the EDD can take you IRS refund, and there is not much you can do about it. You will not be able to prevent the IRS from handing over your refund to the EDD unless you can show the IRS that you do not owe the EDD what it claims it is owed to them. If so, you will most likely be working with the IRS Taxpayer Advocate Office.

You will receive a letter from the EDD entitled NOTICE OF INTENT TO OFFSET YOUR FEDERAL INCOME TAX REFUND. The letter will tell you that the EDD has a record of a past due balance that has been assigned to the EDD Collection Division. The EDD will give you a 60-day window to either pay what you owe in full or present evidence that all or part of the alleged debt is not due or is not legally enforceable.

Let us spend a moment discussing when an EDD debt becomes legally unenforceable, and let us look at the FTB. The FTB now has a collection statue of limitations of twenty years. Twenty years after the date of the FTB assessment the amount owing to them becomes legally unenforceable. That is a long time to wait! On the other hand, the Legislature did not see fit to pass the same rules for the EDD. There is no statue of limitations for EDD debts other than a provision in the California Constitution setting forth a thirty year time limit for taxes owed to the State of California. There may be other technical reasons why an EDD debt may be legally unenforceable, but you should consult with an attorney to get a professional opinion.

The EDD Treasury Offset Program is part of federal law and will reduce your federal income tax refund by what you owe the EDD. If you owe the EDD more than the IRS refund the EDD will be allowed to offset next year’s IRS refund as well. The Refund Offset Program remains in force until the EDD is paid in full. Keep in mind that interest on your unpaid EDD debt compounds daily. Next year the amount owed will be more than this year.

I traditionally advise my clients who owe both the EDD and the IRS to pay off the EDD claim as soon as possible. The IRS is more flexible on installment payments and on giving you the time you need to deal with your IRS deficiency.

If you owe the EDD and you are expecting an IRS refund I suggest you contact the EDD to request an installment payment agreement. An installment agreement may not prevent an offset, but it may prevent further EDD collection actions. Any offset amount received from the IRS will not have a negative impact on your EDD installment agreement, but it may reduce the length of time of the agreement and allow you to obtain future IRS refunds.

For more information on the EDD Offset Program you can contact the EDD at the following address and phone number: EDD – Treasury Offset Program; PO Box 997418 Sacramento CA 95899-7418; (888) 435-4990.

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©Robert Schriebman 2013.

Robert Schriebman has written over 20 books including the major manual used nationally by practitioners and the IRS, “IRS Tax Collection Procedures – A Manual for Practitioners” published by Commerce Clearing House in addition to the only 2 books ever published dealing with how California Employment Development Department (EDD) operates. See “California Tax Collection Practice and Procedures” and “California Taxation Practice and Procedure”, both published by Commerce Clearing House.