ASK THE CALIFORNIA EMPLOYMENT TAX AND PAYROLL TAX ATTORNEY – EDD SETTLEMENTS – WHAT ARE YOUR PAYMENT OPTIONS?
By Robert S. Schriebman 2020
It is no secret that I am a big fan of EDD settlements. Someone once remarked that a good settlement means that neither side is happy with the resolution. This may be true in many resolved disputes in life. But when it comes to putting to bed your long-drawn out EDD audit, and being on the receiving end of a Notice of Assessment, a settlement can end the process and avoid costly and uncertain litigation.
What about paying the settlement? In the current COVID-19 environment, I have found that clients want to explore their payment options because they just do not have the funds to pay a lump sum to the EDD.
In this article, I will review your options when it comes to paying your EDD settlement.
EDD Settlement Payment Options
There are several options available to you when it comes to paying your EDD settlement.
- Lump Sum Payment: this is the preferred choice if you have the money. A lump sum payment saves a late payment penalty, and also avoids having to pay interest on any unpaid settlement balance. The EDD prefers the payment in “good money.” This means cash, cashier’s check, or certified funds. I have never had a client pay in cash, and I do not recommend it. Most clients prefer to pay the lump sum by check. A few clients opt for payment by cashier’s check, but they are in the minority.
- Installment Payments – Generally: any installment payment arrangement will carry with it a 15% late payment penalty. This is not the EDD being greedy; it is statutory. When you have a settlement of $100,000 or more, this 15% surcharge represents big bucks. But this is the price you pay if you want an installment payment arrangement.
In addition to the 15% penalty, there will be interest accruing at the rate of 6% on any unpaid balance.
- Installment Payment Options: there are two installment payment arrangements as follows:
- 18 months or less – you have to request this from the EDD. Settlement payment arrangements are usually not volunteered by the EDD. If you elect this installment plan, you do not have to furnish the EDD with any additional paperwork.
- 24 months or longer – the EDD is reluctant to grant long-term payment arrangements and this request is not entertained favorably. This installment plan requires that you provide the EDD with the following financial data and other information:
- Most currently filed federal income tax return (1040 or 1120 or 1120S)
- Balance sheet showing assets, liabilities and net worth – year to date.
- Balance sheet showing assets, liabilities and net worth for prior calendar or fiscal year.
- Profit and Loss Statement, year to date.
- Bank statements for most current 3 months.
- A letter or statement explaining how the pandemic has impacted your business.
- Credit Card Payments: You may use a credit card to pay settlement payments, either in a lump sum or installments. However, the EDD has a “convenience fee” of 2.3% of any payment amount. This fee is a charge for using Official Payments Corporation’s (OPC) credit card service and is not revenue to the EDD.
Robert Schriebman has a successful practice in the Rolling Hills Estates area of Los Angeles County serving clients throughout California and the United States. He has successfully dedicated more than 40 years to helping individual taxpayers, business owners, CPAs, Enrolled Agents, and tax attorneys navigate the complicated tax systems of the federal and state governments. Mr. Schriebman is in private practice. He is not affiliated in any way with the EDD and he is not employed by the EDD or any other agency of the State of California.
Robert Schriebman has written 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.
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.
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.
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