Help! I didn't pay my business' California (CA) payroll tax

February 06, 2023 by Steve Banner, EA, MBA
Payroll Taxes written on paper with office supplies in background

It’s a good thing you’re asking for help because failing to pay your California payroll taxes is not the right way to run a railroad, as the old saying goes. Falling behind on your payroll tax payments has an effect not only on your employees, but also on your business operations as the California Employment Development Department (EDD) imposes penalties based on the amounts your business owes. My advice is to get caught up as soon as possible before falling even further behind.

In addition to paying California payroll taxes, employers also have a responsibility to collect Federal payroll taxes and, in other articles on this site, we have discussed the not-very-pleasant consequences for businesses who fall behind on their payroll tax payments to the IRS.

But before we go any further, let’s discuss what we mean when we use the term “payroll tax.” As an employer, you are responsible for withholding certain taxes from the wages that your employees earn during each pay period, and then pay those collected sums of money to the IRS and EDD. At the Federal level, these taxes typically include:

 

  • Social security tax (6.2% employee portion, plus 6.2% employer portion)
  • Medicare tax (1.45% employee portion, plus 1.45% employer portion)
  • Federal income tax withholding
  • Federal unemployment tax


For California, the wages of employees are generally subject to four different payroll taxes:

 

  • Employment training tax (ETT) – paid by the employer
  • Unemployment insurance tax (UI) – paid by the employer
  • State disability insurance (SDI) – withheld by the employer on behalf of employees
  • Personal income tax (PIT) - withheld by the employer on behalf of employees

With all these payroll taxes to take care of, it’s easy to see how new employers in California might run into some initial problems as they try to figure out how much to set aside to send the taxing authorities for each pay period. And then there is the issue of knowing which forms to use for each type of tax, and how often those payments are supposed to be sent.

Fortunately, the EDD has established a website portal “e-Services for Business” that is designed to allow businesses to create a payroll tax account they can use to manage this aspect of their business operations. A business can file, adjust, and print their payroll tax returns and reports using this account. They can also make electronic payments with this account, as well as register new and departing employees and independent contractors.

This system has proved itself to be so effective that it is required to be used by all businesses in California. The only exceptions from this requirement to use the electronic system are businesses that have received a waiver from the EDD. The EDD will consider issuing a waiver for businesses who apply for it due to severe economic hardship, a lack of automation, or some other good cause.

As we can see, the EDD has tried to make the filing of payroll tax returns as simple as possible for employers.

However, the EDD also imposes penalties and interest for payroll tax filings that are late or incomplete. If you are in a position such as this, you may be able to request a penalty waiver if the reason for your late or incomplete filing is due to a natural disaster declared by the State of California. On the other hand, if no natural disaster is involved, you may still be able to submit a request for waiver if you can show a good or reasonable cause for failing to comply in a timely manner with submission of a return or payment.

According to the EDD, good cause exists where the circumstances that caused the delay are clearly beyond your control as an employer or where the delay is due to a mistake or other event that took place under circumstances that you could not reasonably have foreseen as an employer.

But no matter what happened that led you to land in this situation, you do not have to deal with it all on your own. An obligation-free, cost-free evaluation with one of our experienced attorneys, CPAs, or Enrolled Agents at TaxAudit’s Tax Debt Relief Assistance program will help you understand the options available for you to get things back on the right track with your California payroll taxes. And once you get those payroll taxes back on schedule, you’ll be able to get back to running your business (railroad or otherwise😊) in the way you always intended.

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Steve Banner, EA, MBA
Tax Content Developer

 

Steve Banner began his career in the field of income tax in 1977 and has since gathered business experience in a variety of countries and cultures. In addition to the United States, he has lived and worked for extended periods in Australia, Saudi Arabia, Canada, and Sweden. Along the way he studied Adult Education and earned a Bachelor of Education, Master of Educational Administration, and MBA. He joined TaxAudit in 2016, where he is a Tax Content Developer.


 

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