The Expensive Mistake CA Employers Can't Afford

If you’re an employer located in and/or employ a team of Californian employees, paying taxes on time isn’t optional – it’s a legal obligation. Falling behind with the IRS or California’s Employment Development Department (EDD) can have serious financial and personal consequences. Below, we break down what employers need to know about some of the risks of late payroll tax payments and what steps to take if you find you or your company behind.

Federal Consequences (IRS)

The IRS takes payroll taxes very seriously because employers are collecting money on behalf of employees. If not, the employer can face failure to deposit penalties (2%-15% of unpaid tax and based on how late the payment(s) are), failure to pay penalty (0.5% per month, up to 24% of unpaid balance), interest (unpaid taxes and penalties until paid in full), trust fund recovery penalty (most dangerous and could leave owners, executives or payroll managers personally liable for 100% of the FICA portion), and even criminal exposure (if found to be willful evasion).

California Consequences (EDD)

The EDD enforces California’s employment tax laws and has its own set of penalties separate from federal laws which include late payment penalties (15% of unpaid tax), late filing penalties (additional 10% if returns are not filed timely), interest (charged until balance is paid in full), personal liability (EDD holds those responsible for handling payroll taxes personally liable for unpaid withholding taxes), and aggressive collections (EDD can file liens, issue levies, and garnish wages for unpaid balances owed).

Business Risks

Failure to pay employment taxes brings government penalties and can also harm your business by damaging credit and reputation as liens are public, loss of good standing with tax authorities and triggering federal and state audits, loss of potential professional licensing, certifications, and financing, and may increase scrutiny on future filings and payroll practices.

Final Thoughts

If you’ve missed employment tax payments, consider the following: Act quickly, set up a payment plan with tax authorities, and actively seek professional help from a trusted and local tax attorney to protect you from personal liability and negotiate with tax agencies. Employment taxes are not just another bill; they’re trust funds you hold on behalf of employees. The IRS and EDD treat late or unpaid payroll taxes as a serious offense. With swift action under the guidance of a trusted and local tax attorney, you can resolve issues before they spiral out of control.

If you have any questions regarding your individual or businesses’ state and/or federal tax return(s)/tax liabilities or received a notice from the IRS, FTB, EDD, CDTFA or any other regulatory agency, please call or email Wilson Tax Law Group, APLC, to setup a consultation with our firm.

Wilson Tax Law Group, APLC is a boutique Orange County tax controversy law firm that specializes in representation of individuals and businesses before federal and state tax authorities with audits, appeals, FBAR, offshore compliance, litigation and criminal defense.  Firm founder, Joseph P. Wilson, is a former Federal tax prosecutor and trial attorney for the IRS and California Franchise Tax Board.  Wilson Tax Law Group, APLC, is comprised of former IRS litigators & Special Agents, and Assistant US Attorneys from the US Attorney’s Office, Central District of California, Tax Division, which at the time handled both civil tax lawsuits and criminal tax prosecutions on behalf of the United States of America.

For further information, or to arrange a consultation please contact: Wilson Tax Law Group, APLC

Tel: (949) 397-2292 (Newport Beach Office) 

Tel: (714) 463-4430 (Yorba Linda Office)

Disclaimer: This blog post is for informational purposes only and does not constitute legal, tax or financial advice. Please consult with a qualified attorney, accountant or financial advisor for specific guidance related to your circumstances.