EDD Updates

February 22, 2018

Inside the Employment Development Department

By James C. Counts II, CPA, CTFA

As the CalCPA Committee on Taxation liaison to the California Employment Development Department, I meet regularly with EDD Tax Branch management. The following are updates from a recent meeting.

Collection Division 
EDD divisions are working to improve their technology systems to be more efficient and productive. Toward that end, a new system is the Benefit Overpayment Collection Automation (BOCA) project, which is due in June. This program will help maximize the collection of Unemployment Insurance (UI) and Disability Insurance (DI) benefit overpayments. BOCA will automate much of the process to do bank levies, flexible payment due dates, monthly repayment amount proposals based on business rules and electronic payment options. 

Field Audit and Compliance Division
FACD previously received authorization to hire additional auditors, who, in 2017, started to reach normal productivity for field auditors—so the number of audits has increased. The federal Department of Labor wants the EDD to audit 1 percent of all employers each year. At the beginning of February, the EDD had about 1.4 million employers, and it’s believed about 9,000 employers are audited in a year. 

Tax Processing and Accounting Division
The work TPAD does has an effect on the entire EDD Tax Branch. To begin with, employers with 10 or more employees were required to electronically file their returns and pay electronically as of Jan. 1, 2017. All other employers were required to file and pay electronically as of Jan. 1, 2018. As of the third quarter of 2017, 97 percent of employers with 10 or more employees and 68 percent of employers with fewer than 10 employees are doing so electronically.

Because of this requirement, less paper is being filed with Tax Branch, so employees who used to spend time scanning documents and correcting scan errors, are shifting to other duties.

The division now processes the compliance adjustments and correspondence work items that used to be done by CD and field collectors, which frees up those field collectors to work on more assigned field collection cases.

California UI Appeals Board
For an overview of the tax appeals process and how to file an appeal for both tax and benefit issues, visit cuiab.ca.gov/Documents/cuiabAppealsProcedureManual.pdf.
The CUIAB receives about 3,700 tax petitions each year, a majority of which can be grouped into one of two categories:
  • Tax Audits: Usually from a notice of assessment or denial of claim for refund, such as status of a worker as an employee or independent contractor or the responsibility of a corporate officer for a delinquent liability.
  • Tax Rulings: These are about benefit charges to the employer account.  
In recent years CUIAB has not had the resources to be current on cases, but this has been resolved, and the board now has a goal to resolve a case in an average of nine months, which runs from the filing of the petition to the issuing of the decision.

SDI and PFL Increase in Wage Replacement Rate
State Disability Insurance (SDI) and Paid Family Leave (PFL) benefits are designed to replace a certain percentage of the employee’s normal wage. In 2017, AB 908 was enacted and in 2018, went into effect, increasing the Wage Replacement Rate from 55 percent to 70 percent for low-income earners, and to 60 percent for all other wage earners. While employees pay the SDI tax, these increases are aimed at encouraging more employees to claim these benefits.

The Legislature is working to increase employee awareness of PFL and encourage employees to claim benefits. The tax to pay for these PFL benefits is part of the SDI tax withheld from employee wages.

UI Fund
Background: About 1999, the Legislature increased worker weekly benefits, but did not change the funding formula. With the 2007 recession, there were not enough funds to pay worker benefits, so the Department of Labor loaned funds. Because payments on the loan were not made, California employers had their Federal Unemployment Tax Act (FUTA) tax increased. It is expected that the loan will be paid off and, come January 2019 when filing the 2018 Form 940, the extra FUTA tax will not be required. However, the UI Fund needs a higher balance to pay future benefits. 

The Legislature is not expected to take up the issue soon. If the UI Fund is unable to pay benefits in the next recession, then it will have to again borrow and employers again would likely have to pay a higher FUTA tax.

Jim Counts, CPA, CTFA owns James C. Counts II, CPA. 
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