The California Employment Development Department (EDD) is responsible for collecting and administering state employment taxes. They are also charged with enforcing the laws that allow these taxes to be collected. This enforcement power means that if you owe money to the State of California, the EDD can withhold money that the state owes to you to satisfy your debt. They can also garnish your wages, put a lien on your property, and take other steps to ensure that the money you owe to the state is paid. To accomplish this task, the EDD works closely with other California governmental entities, including the Franchise Tax Board, the State Controller, and the State Lottery.
The EDD Collection Process
Often, the first indication of an unpaid debt to the state comes in the form of a phone call or more often, a letter from a Tax Compliance Representative (Tax Rep) employed by the Central Collection Division of the EDD. The notice from the EDD will state the nature and the amount of the debt, a date by which the debt must be satisfied, and the contact information for the Tax Rep assigned to collect the debt.
If you receive any notice from the EDD about a debt owed to the state, it is in your best interest to take it seriously. The worst thing that you can do is ignore the notice. The EDD will not simply forget about the money that they claim you owe. They will do everything in their power to collect the money needed to satisfy the debt. Because of this, the best course of action is to contact both the Tax Rep and an experienced tax professional who handles EDD collection matters. By doing so, you can begin to ascertain whether you actually do owe the state money and, if so, how you can begin making installment payments. The EDD will work with you since mutually agreed solutions are preferable to more onerous collections methods. However, it is important to remember that when confronted by the EDD with a debt, you have a limited number of options available to you. You can:
- Try to prove that you owe the state nothing;
- Agree that the debt is valid and pay the entire amount all at once;
- Agree that the debt is valid and pay the entire amount in installments;
- Convince the EDD to accept an Offer of Compromise (because you cannot afford to pay the entire debt); or,
- See if you qualify for a hardship suspension whereby the EDD will forego collection for a specified period of time due to personal circumstances that are currently preventing you from paying any portion of the debt.
Again, the worst possible choice is doing nothing. In such a case the EDD will resort to using a variety of collection methods that will almost always be more unpleasant than negotiating a mutually agreeable solution to the problem.
EDD Wage Garnishment
The EDD has the power to garnish your wages to satisfy a debt you owe to the State of California. Unlike other creditors, the EDD can do this without a court order if you:
- Were overpaid state unemployment or disability benefits;
- Have unpaid income taxes;
- Defaulted on student loans; or
- Owe child support payments.
In such a case, the EDD will simply send a wage garnishment order to your employer. The order will require the employer to withhold a specific percentage of your paycheck and have the withheld funds sent directly to the creditor to satisfy the debt.
Any wage garnishment must leave you with enough money for living expenses. If it does not, the entire reason for the garnishment would be pointless. Therefore, under California law, garnishment is limited to either 25% of your net income after deductions or the amount your net income after deductions exceeds 40 times the state’s minimum wage ($11 per hour in 2018), whichever is less. For the average wage earner, 25% of net income is the usual amount garnished.
Other EDD Collection Options
The EDD can do more than garnish your wages to satisfy a state debt. Under certain circumstances, they can also:
- Withhold future unemployment and disability payments;
- Work with the Franchise Tax Board to withhold all or a portion of any California income tax refunds;
- Refer the matter to the IRS to withhold all or a portion of any federal income tax refunds;
- Work with the State Lottery to withhold all or a portion of any state lottery winnings; or
- File suit and have a judgment entered against you so that a lien can be recorded against any real property you own.
What To Do If the EDD Takes Your Money
The EDD takes its collection responsibilities very seriously. This means that you should treat seriously any contact from the EDD as well. Remember, it is the EDD that will determine the final amount you owe, not a judge or a jury of your peers. Therefore, procuring the services of a California tax professional experienced in the EDD collection process as soon as possible after receiving a notice is extremely important. An experienced professional can contact the EDD tax rep assigned to your case and determine the validity of the claimed debt. He or she can also review the specific facts of your case to see if the statute of limitations on collecting the debt has run or whether the EDD followed the proper procedures in making the debt assessment against you.
In the end, the EDD has a number of collection tools that they can bring against you if they feel you owe money to the State of California. However, the fact that they possess these tools does not make them infallible. This is where an experienced California EDD tax professional, like those at Rex Halverson & Associates, can help. We can make sure any debt assessment against you is valid; and, if it is, guide you through the repayment process, using our knowledge of California tax law to help you achieve the best possible results. Contact us today for a free and confidential consultation.