Posted by What is EDD?
EDD is the Employment Development Department. It is one of the largest California state departments and is responsible for administering the payroll tax regulations for California businesses and individuals.
Payroll taxes administered by the Employment Development Department- EDD include the following:
- Employment Training Tax (ETT)
- Unemployment Insurance (UI)
- Personal Income Tax (PIT)
- State Disability Insurance (SDI)
Employment Training Tax provides funds for training employees in specifically targeted industries to make California more competitive in business. It is withheld at a rate of 0.1 percent with a taxable wage limit of $7,000 for 2021.
Each December, the EDD notifies tax-rated employers of the new UI tax percentage paid on the first $7,000 in wages paid to each employee in a calendar year. For a period of two to three years, new employers pay 3.4 percent (0.34). The maximum tax is $434 per employee per year (calculated at the highest UI tax rate of 6.2 percent x $7,000).
Both the ETT and the UI are employer contributions.
Personal Income Tax is levied on the income of California residents and the income derived from the state by non-residents. The tax rate is determined by the employee’s Withholding Allowance Certificate (W-4 or DE 4). There is no taxable wage limit or maximum tax.
The Employment Development Department- EDD and Franchise Tax Board- FTB use these taxes to provide resources for state public services such as schools, public parks, roads, and health and human resources.
The current State Disability Insurance- SDI withholding rate is 1.2%. The taxable wage limit is $128,298 for each employee’s wages and is submitted by the employer to the Employment Development Department-EDD and the Internal Revenue Service (IRS).
Most employers file and submit payroll taxes semi-weekly or monthly, although smaller businesses can pay quarterly. Tiny employers can file once a year.
AB 1245 requires all employers electronically to submit employment tax returns, wage reports, and payroll tax deposits to the EDD. Before then. Payroll taxes can be submitted via electronic fund transfer, credit card, and direct deposit.
Employment Development Department (EDD) Calculations, Exceptions, and Exemptions
There are special rules for family members who work for you, non-profit organizations, and notable exclusions. Some employment types are not subject to PIT withholding, but wages may still be reportable.
People receiving work relief or work training financed by any government agency and custodial or penal institution inmates are exempted from ETT, UI, and SDI withholdings.
A business owner can apply for a waiver from paying payroll taxes due to reasonable cause, statutory exceptions, or Underdue hardship. Each waiver is considered on a case-by-case basis.
Calculating withholding can get tricky when you must consider holidays, terminations, leaves of absence, and other delays. Communication between the HR benefits specialist and the payroll office is crucial for keeping tax withholding on track.
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The EDD and the IRS are not Alike
The tax regulations in California are comparable to the federal tax rules in the US but not identical. There are different rules about family leave and who is held responsible for non-payment of corporate employment taxes.
There are also subtle differences in how each defines employee classification.
Where and When Problems Occur
1. Employee Classification
Employee classification is the area that causes the most problems for business owners. Both the IRS and the EDD are very interested in whether a worker is classified as an employee or an independent contractor.
An employer must withhold, file, and pay employment taxes for an employee but not for an independent contractor. The EDD looks at the employer-employee relationship to determine classification.
If a person who hires an individual to perform services has the right to exercise control over the manner, method, mode, and means of how the service is completed, the worker is an employee.
2. Late Filing and Payment
If you file or pay payroll taxes late, you are out of compliance and will owe penalties and interest on the amount of tax you owe.
3. Miscalculations, Underpayment, and Changes to the Business
If you miscalculate taxes, you will still be assessed a penalty if you underpay. If you try to conceal the existence of a worker by paying in cash and failing to file a Form 1099, you are also in trouble.
Changes to the business, like closing or expanding, must also be reported for the appropriate amount of taxes to be calculated and submitted without fear of penalty.
Employment Development Department audits
The key to any Employment Development Department audit is to make sure all records submitted are relevant to the EDD. Any documents that do not pertain to employment-related issues are not appropriate.
Documents that can be requested include:
- Check registers and stubs
- Bank Statements and canceled checks
- General ledger and journal
- Annual financial statements
- Vouchers and payout slips
- Forms 1099.
The EDD can decide to audit if a worker makes the case that they are an employee rather than an independent contractor, typically found out when the employee tries to apply for underemployment insurance.
Other triggers for an audit include:
- Filling or paying late
- Errors in time records or other statements or documents
- Digital failures that cancel or delay payroll.
What Is Needed To Be Done To Certify For Unemployment Insurance Benefits From EDD.
You must provide the EDD eligibility information every two weeks to receive unemployment benefits. This is known as certifying for benefits. You must also meet all weekly eligibility requirements. If you stopped certifying for help, you might need to reopen your claim. If your claim has expired, you will need to file a new claim.
Important: If you withhold or give false information to receive benefits, such as not reporting work or wages, you commit fraud. Penalties may include a loss of benefits, a false statement disqualification, and criminal prosecution.
Ways to Certify for Benefits
Submit your certification using one of the following:
- Online: UI Online
- By phone: EDD Tele-Cert.
- By mail: Complete, sign, and mail the paper form.
To avoid common errors and reduce payment delays, certify online or by phone.
Certify with UI Online
UI Online is the fastest way to certify for benefits and report work and wages.
Log in to Benefit Programs Online and select UI Online to get started.
Check the Notifications section of your homepage. If weeks are available, select Certify for Benefits and answer all questions. If no weeks are available, the system will tell you when to check again and will send you an email reminder.
Note: The Work Search Record screen is optional and provides a helpful tool to record your work search efforts. To skip this screen, select Next.
You will receive a confirmation number when your certification has been successfully submitted. Keep this number for your records.
Certify with EDD Tele-Cert
EDD Tele-Cert is a convenient and easy way to certify for UI benefits over the phone.
Follow these steps to request your benefit:
1. Call the UI Automated Self-Service Line at 1-866-333-4606.
2. Select Menu Option 1.
3. Enter your four-digit PIN. If you do not have one, the system will tell you to create one.
4. Answer all certification questions and confirm your answers.
You will receive a confirmation number when your certification has been successfully submitted. Keep this number for your records.
Note: If you need to report work and wages, a change of address, or a phone number, certify through UI Online or mail.
Certify by Mail
If you certify for unemployment benefits by email, you must complete, sign, and mail a Continued Claim Form {DE 4581CTO} to the EDD every two weeks. You will receive your first claim form within ten days of the EDD processing your application. Additional claim forms will be mailed to you each time you need to certify for benefits.
Important: To faster processing of your certifications and avoid mail delays and standard errors with the paper claim form, submit your certificates through UI Online or by phone through EDD Tele-Cert.
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