Many business owners reach out to us after receiving notices from the Employment Development Department (EDD) with proposed taxes and penalties. They had no clue why they would receive such notices and how to respond or appeal to the notice. Here is the reason.
When the business is created or when the business is applying for the EIN, they selected the option that they will have employees. With this option selected, the EDD expects to receive quarterly payroll filings from the business.
When the business fails to meet the filing requirements, EDD imputes taxes based on an average small business. When the business is registered with the state, the business owner may accidentally make a wrong selection indicating that the expect to have employees. It is true that the business expects to have employees in the future but it is not a fact at the point of the creation of the business. With the selection, the states expect the business to file and pay quarterly payroll taxes. If they don’t receive any info by the deadline, the states will penalize the business.
The amount of taxes and penalty can easily be $15,000, which understandably may be a big deal for some early start-ups. Contact Dimov Tax Associates today and we can help you get it resolved.