March 14th, 2017

Avoiding an Employment Development Department Audit

Download the list of Employment Development Department trigger

The Employment Development Department (EDD) conducts payroll tax audits of businesses operating in California. Here are some triggers that cause a company to get audited:

  1. The 1099 independent contractor (IC) files an unemployment claim. This creates suspicion because ICs are NOT eligible for unemployment.
  2. The 1099 IC files a workers’ compensation or disability claim against the company. If someone is truly an IC, they should carry workers’ comp and disability insurance on themselves because they are not eligible through an employer.
  3. A worker receives a W-2 and a 1099 Form from the same employer in one year. This happens when they are converted from a 1099 IC to a direct hire of the company. But if they performed the same work as a 1099 IC and a W-2 employee, the IRS may wonder why they were not classified as an employee all along. Read the rest of this entry »