Employment Taxes (EDD / IRS)
An employment tax audit can result in tremendous tax debts. Most employment tax audits begin with an IRS audit or, most often, an independent contractor filing for unemployment benefits. When that happens, the Employment Development Department (EDD) is the auditing agency. If employment tax audit adjustments are made to your account, those changes will also be reported to the IRS for a potential adjustment to your federal employment taxes. There are a number of safe harbor rules that will protect you from IRS adjustments.
Businesses employing independent contractors need to be especially careful because EDD employment tax audits can be financially devastating, resulting in tax debts over a period of many years. In addition, the law of independent contractor status strongly favors the EDD in an employment tax audit. There are many strategies to reduce or eliminate payroll tax increases. For instance, if the independent contractors have actually paid their own state income taxes, a partial credit for the full amount we are able to prove may be available to reduce these tax debts.
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