When You Owe The EDD – An Overview
By Robert S. Schriebman
Materials from Mr. Schriebman’s book entitled California Taxation Practice and Procedure,
published by Commerce Clearing House – CCH.
The EDD is the third largest department in the government of the State of California. It was created in 1935 for the purpose of having California pick up on the federal unemployment insurance program. In 1946, a mandatory disability insurance program was added.
The EDD has a responsibility for administering the collection, accounting and enforcement functions for employment and withholding taxes. The Central Collection Division is responsible for the collection of tax accounts receivable and benefit overpayments. This division is a highly automated organization with over thirty tax offices throughout California.
If you owe the EDD you may have been contacted by an assigned collector either by mail or by phone. The EDD prefers to contact the taxpayer in an attempt to workout a solution to deficiencies without first resorting to enforced collection. The EDD’s tax collector is called a Tax Compliance Representative or “Tax Rep.”
Most people who owe taxes have several avenues available to resolve their tax debt. Obviously, if you owe the EDD and can pay in full, you should immediately pay what you owe and get them out of your life. If you believe you have overpaid, or you do not owe the EDD, you may file a claim for refund and pursue your claim administratively or in the Superior Court. Please see my articles on the refund process.
For those who can not fully pay, there are usually four options:
- An installment payment agreement – if you are an in-business taxpayer, the EDD wants you to fully pay in twenty-four months. If you are out of business, longer payment arrangements are available. Interest continues to accrue on any unpaid balance.
- Hardship suspension – In today’s economy there are an unprecedented number of taxpayers who owe taxes but are barely surviving. The EDD understands this and is willing to suspend collection. However, suspending collection is not debt forgiveness and interest continues to accrue on any unpaid or suspended account.
- Offer in Compromise – Just like the IRS and the FTB, the EDD has an OIC program. To be eligible you can not be charged with any type of EDD fraud or employment fraud, and you must be out of the specific business generating the deficiency.
- Bankruptcy – If you owe income taxes or sales and use taxes you may be eligible for discharge of those taxes in a Chapter 7 proceeding. However, you can not discharge EDD deficiencies or IRS employment tax deficiencies. So, bankruptcy is really not an option.
Regardless of the road you choose for resolving your debt to the EDD, the most important thing to remember is the importance of immediate communication with your assigned tax collector. That person may be the sole judge and jury in your tax resolution. More people get into trouble with the EDD when they try to evade contact with the assigned collector.
In conclusion, I suggest that before you pay what the EDD says you owe you must make certain your debt to the EDD is accurate and legally valid. Too many times I have seen cases where people pay taxes they do not legally owe. When someone comes to me with an EDD debt the first thing I do, after obtaining a power of attorney, is to investigate the underlying validity of the assessment. I determine whether the underlying assessment was statute barred when it was issued, and I also try to determine if the assessment was issued according to proper internal EDD procedures. Sometimes I find that things were not done according to law, and my client legally owes the EDD nothing.
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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.