What is an EDD Notice of Assessment?

A Notice of Assessment is EDD's formal notice that it has assessed an employment tax liability against an employer.

How long do I have to appeal an EDD assessment?

For most EDD employment tax assessments, a Petition for Reassessment generally must be filed within 30 days. Different deadlines can apply to certain assessments, so the specific notice and petition instructions should be reviewed immediately.

Do I have to pay an EDD assessment while appealing?

An employer that files a Petition for Reassessment may decide not to pay the disputed assessment while the case proceeds, but interest will normally continue to increase. An employer may instead prepay the disputed liability to stop additional interest.

What happens if I pay an EDD assessment and still dispute it?

EDD states that if an employer files a Petition for Reassessment and prepays the disputed assessment, the petition automatically converts to a claim for refund of the disputed amount.

Can a CPA represent me in an EDD assessment dispute?

An employer may be represented in an EDD employment tax dispute. A CPA can assist with audit records, accounting issues, tax calculations, worker classification issues, and the assessment and appeal process.

How to Challenge an EDD Audit Assessment in California

Q: Where do I appeal an EDD payroll tax assessment?

A Petition for Reassessment is filed with the California Unemployment Insurance Appeals Board, or CUIAB, which is independent from EDD.

By Marc Boulanger, CPA

An EDD audit assessment is not necessarily the final word. If you disagree with the Department's findings, California provides a formal process for challenging the assessment.

The important question is not simply whether you disagree. A successful challenge begins with identifying exactly what EDD got wrong and supporting that position with the facts, records, and applicable worker-classification or employment tax rules.

Disagree With an EDD Assessment? Start Here

First, identify the deadline shown by the assessment and determine whether a Petition for Reassessment must be filed to protect your rights. Then separate the case into the specific findings you dispute, the evidence supporting your position, and any errors in EDD's calculations.

1. Protect the Petition Deadline

Before debating the merits of the audit, determine the deadline for challenging the assessment.

For many EDD employment tax assessments, a Petition for Reassessment generally must be filed within 30 days. Different rules can apply to certain assessments, so the actual notice and petition instructions should be reviewed immediately.

Do not spend the entire petition period trying to resolve the disagreement informally. Protecting the formal deadline should be addressed separately from ongoing discussions with the auditor.

2. Determine Exactly What EDD Is Assessing

A large assessment can initially look like one issue when it may actually contain several.

For example, an assessment might involve:

Independent contractor reclassification
Unreported employee wages
Payments made outside payroll
Payroll reconciliation differences
Officer or shareholder compensation
Multiple audit periods
Penalties
Interest

Each issue may require a different response.

3. Review the Auditor's Calculations

Even when the primary disagreement involves worker classification, I also want to review how the auditor calculated the proposed or assessed liability.

Questions can include:

Which workers were included?
Which payments were treated as wages?
Which quarters were affected?
Were payments counted more than once?
Were amounts attributed to the correct worker and period?
Were adjustments projected or extrapolated?
Were reported wages properly credited?
How were penalties calculated?

The classification issue and the mathematical calculation of the assessment are separate questions. Both deserve review.

4. Identify the Worker-Classification Standard EDD Used

If the assessment involves independent contractors, determine which legal classification standard applies to each category of worker.

For some workers, the California ABC test applies. Other workers or relationships may fall within statutory exceptions where Borello or another standard applies.

Do not assume every 1099 worker should be analyzed under exactly the same test.

See: California ABC Test in an EDD Audit

5. Analyze Workers by Category

One of the mistakes I would avoid is treating every contractor as though the facts are identical.

A business might have several very different categories of service providers:

Licensed professionals
Salespeople
Maintenance workers
Consultants
Bookkeepers
Installers
Drivers
Occasional repair contractors

The applicable classification test and underlying facts may differ from one category to another.

6. Build the Case From Documents, Not Labels

Calling someone an independent contractor does not establish that classification.

Neither does issuing a Form 1099 or having a signed independent contractor agreement.

Depending on the issue, useful evidence can include:

Written agreements
Invoices
Business licenses
Evidence of separate businesses
Customer records
Company marketing materials
Job descriptions
Accounting records
Payroll records
Forms 1099
Correspondence
Evidence showing how the work was actually performed

7. Look Closely at Part B of the ABC Test

When the ABC test applies, Part B can become a particularly important issue.

Part B asks whether the worker performs work outside the usual course of the hiring entity's business.

That requires understanding both what the business actually does and what services the worker actually performed.

See: Part B of the California ABC Test

8. Reconcile the Accounting Records

An EDD dispute is not always purely a legal classification argument.

The underlying numbers may come from payroll reports, the general ledger, Forms 1099, bank records, Forms W-2, DE 9 and DE 9C filings, and federal payroll tax returns.

Those records should tell a coherent story.

See: EDD Payroll Verification Test

9. Separate Strong Issues From Weak Ones

An assessment does not necessarily have to be entirely right or entirely wrong.

Some worker categories may present stronger classification arguments than others. Some periods may contain better documentation. Some portions of the auditor's calculation may be correct while others are disputed.

A focused challenge identifies the issues that can actually be supported rather than simply arguing that the entire assessment is unfair.

10. File a Petition for Reassessment

The formal method for contesting an EDD employment tax assessment is generally a Petition for Reassessment filed with the California Unemployment Insurance Appeals Board, or CUIAB.

CUIAB is separate and independent from EDD.

The petition does not need to resemble a lengthy court filing, but it should clearly identify the assessment being challenged and the basis for requesting reassessment.

What Happens After the Petition Is Filed?

EDD prepares an Answer to the Petition and provides a copy to the petitioner.

Additional information can still be provided to EDD before the hearing, and that information may result in an adjustment to the assessment.

If the matter remains unresolved, the next step is generally a formal hearing before an Administrative Law Judge of CUIAB.

What Happens at the CUIAB Hearing?

At the hearing, both sides have an opportunity to present their case.

EDD's published guidance explains that the parties may call and examine witnesses, question opposing witnesses, and introduce exhibits.

This makes the underlying documentation important. Records that support the employer's position should be identified and organized before the hearing rather than treated as an afterthought.

Can a CPA Represent You in an EDD Appeal?

Yes. EDD's Petition for Reassessment guidance states that an employer may represent itself or be represented by a CPA, accountant, attorney, or other representative at the CUIAB hearing.

For disputes involving payroll reconciliations, accounting records, tax calculations, and worker classification, understanding the underlying financial records can be an important part of presenting the case.

Does Filing a Petition Stop Interest?

No.

EDD states that filing a Petition for Reassessment does not suspend the accrual of interest on the assessed amount.

An employer may choose to pay the assessed liability while continuing to challenge it. EDD states that full payment is not an admission that the disputed amount is owed and that the petition will automatically convert to a petition for refund of the disputed amount.

What I Look at Before Challenging an EDD Assessment

Before deciding how to challenge an assessment, I want to understand the case from both the audit and accounting sides.

My initial review generally includes:

The Notice of Assessment and filing deadline
The auditor's schedules
The categories of workers being challenged
The applicable classification test
Any potentially applicable exceptions
Contracts and invoices
Forms W-2 and 1099
Payroll reports
General ledger activity
Bank and payment records when relevant
The calculation of additional wages
Penalties and interest

The objective is to determine what can be challenged, why it can be challenged, and what evidence supports that position.

Disagree With an EDD Audit Assessment?

Boulanger CPA and Consulting PC represents California employers challenging EDD payroll tax assessments involving independent contractors, worker classification, payroll records, audit calculations, and petitions for reassessment.

Schedule an EDD Assessment Consultation

Challenging an EDD Assessment FAQs

Can you challenge an EDD payroll tax assessment?

Yes. California provides a process for challenging an EDD employment tax assessment through a Petition for Reassessment and, when necessary, a hearing before an Administrative Law Judge of CUIAB.

How long do you have to challenge an EDD assessment?

For many EDD employment tax assessments, the general petition period is 30 days. Different rules apply to certain assessments, so the notice and filing instructions should be reviewed immediately.

Where is an EDD tax assessment appealed?

The Petition for Reassessment is filed with the California Unemployment Insurance Appeals Board, or CUIAB. CUIAB is separate and independent from EDD.

Can I submit more evidence after filing my petition?

Yes. EDD's petition guidance states that additional information may be submitted before the hearing and may potentially result in an adjustment to the assessment.

Does filing a Petition for Reassessment stop interest?

No. EDD states that filing a petition does not suspend the accrual of interest on the assessed amount.

Can a CPA represent me at an EDD tax hearing?

Yes. EDD's published petition guidance states that an employer may represent itself or be represented by a CPA, accountant, attorney, or other representative.