EDD Notice of Assessment: What Happens After a California Payroll Tax Audit?

By Marc Boulanger, CPA

Receiving an EDD Notice of Assessment can be one of the most important points in a California employment tax audit. The audit examination may be ending, but the employer now has to decide whether to accept the assessment, challenge it, pay it, or take other action.

This is also where deadlines become critical. If you disagree with the assessment, waiting too long can affect your right to challenge it.

Received an EDD Notice of Assessment? Start Here

A Notice of Assessment is EDD's formal assessment of employment tax liability. If you disagree, you generally have the right to file a Petition for Reassessment with the California Unemployment Insurance Appeals Board (CUIAB).

For most assessments, the petition period is generally 30 days. Read the actual notice immediately because the notice identifies your petition rights and applicable deadline, and special rules apply to some assessments.

What Is an EDD Notice of Assessment?

The Notice of Assessment is the formal notice that EDD has assessed an employment tax liability against the employer.

The assessment can arise from issues identified during an employment tax audit, including unreported wages, worker classification, payroll reporting differences, or other employment tax issues.

For an employer facing a worker-classification audit, the notice may reflect EDD's determination that workers treated as independent contractors should instead have been treated as employees.

Does the Notice of Assessment Mean the Case Is Over?

Not necessarily.

The Notice of Assessment can mark the transition from the audit examination into the formal dispute process.

If the employer agrees with the assessment, the liability can generally be paid or addressed through available payment options.

If the employer disagrees, the assessment can generally be challenged through a timely Petition for Reassessment.

How Long Do You Have to Challenge an EDD Assessment?

For most EDD employment tax assessments, an employer generally has 30 days to file a Petition for Reassessment.

Do Not Assume Every EDD Assessment Has the Same Deadline

Special rules apply to certain assessments. For example, CUIAB states that jeopardy assessment tax petitions have a shorter 10-calendar-day filing period. Always review the specific Notice of Assessment and its petition instructions immediately.

Why the Petition Deadline Matters

EDD's Tax Audit Guidelines state that assessments under several provisions of the California Unemployment Insurance Code become final after the applicable period unless a Petition for Reassessment is filed.

That is why I would not wait until the end of the petition period to begin reviewing an assessment.

The employer may need time to understand what was assessed, compare the assessment with the auditor's work, identify disputed issues, and prepare the petition.

What Should You Review When the Assessment Arrives?

I would not start by looking only at the total dollar amount.

The underlying components matter.

Depending on the case, I want to understand:

  • Which audit periods were assessed
  • Which workers or payments were included
  • How EDD calculated additional wages
  • Which worker-classification test EDD applied
  • Whether any classification exceptions were considered
  • Whether the auditor extrapolated findings across periods
  • How the underlying tax was calculated
  • What penalties were included
  • How interest is being calculated
  • Whether the assessment agrees with the auditor's schedules

What if the Assessment Is Based on Misclassified 1099 Workers?

Worker-classification assessments can require two separate reviews.

First, was EDD correct that the workers should have been classified as employees?

Second, even if some workers were misclassified, did EDD calculate the resulting assessment correctly?

Those are different questions.

A classification dispute can involve the ABC test, an applicable exception, the Borello test, or another classification standard depending on the worker and relationship.

See: EDD Independent Contractor Audit Guide and California ABC Test in an EDD Audit.

What Is an EDD Pre-Assessment Conference?

EDD's published guidance states that the auditor explains the basis for the audit assessment and the employer's petition rights and offers the employer a pre-assessment conference with the auditor and the auditor's supervisor.

This can provide an opportunity to discuss disputed audit findings and better understand EDD's position.

A conference should not be treated as a substitute for protecting the formal petition deadline. The employer still needs to pay attention to the date on the assessment and the petition instructions.

Where Do You Appeal an EDD Notice of Assessment?

A Petition for Reassessment is filed with the California Unemployment Insurance Appeals Board, commonly called CUIAB.

CUIAB is independent from EDD.

After CUIAB receives the petition, EDD is notified and responds. The matter can then be scheduled for a hearing before an Administrative Law Judge.

This is different from many California tax disputes. An EDD employment tax assessment is not appealed to the California Office of Tax Appeals.

See our EDD Audit Appeal Guide.

Do You Have to Pay the Assessment While You Challenge It?

An employer that files a Petition for Reassessment may decide not to pay the disputed assessment while the case proceeds.

However, EDD specifically warns that delaying payment will normally increase the interest charges associated with the liability.

The employer may instead choose to prepay the disputed assessment to stop additional interest from accruing.

What Happens if You Pay While Challenging the Assessment?

EDD states that when 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.

If the dispute is ultimately resolved in the employer's favor, EDD states that an overpayment is refunded with applicable interest as provided by law.

Whether to pay during a dispute is therefore both a procedural and financial decision.

What if You Agree With the Assessment but Cannot Pay It All at Once?

EDD recognizes that an audit assessment can create a liability that a business cannot immediately pay in full.

EDD states that it will consider an installment agreement for liabilities resulting from an assessment.

An installment agreement addresses payment of the liability. It is different from disputing whether the assessment itself is correct.

What Happens to Workers EDD Says Were Misclassified?

An assessment involving worker classification can have consequences beyond the historical audit period.

EDD's guidance states that when it determines workers treated as independent contractors should have been classified as employees, the determination applies to past and future periods, and the employer should begin reporting those workers for state payroll tax purposes.

That can create an important business decision when the employer intends to challenge the underlying classification determination.

What I Look at First When a Client Receives an EDD Assessment

My first concern is protecting the employer's ability to challenge the assessment while determining exactly what EDD did.

I generally want to review:

  • The Notice of Assessment
  • The date of the notice and petition deadline
  • The auditor's schedules and workpapers available to the employer
  • Any exit or pre-assessment conference information
  • The workers or payments included in the assessment
  • The classification theory used by EDD
  • The accounting and payroll records supporting the employer's position
  • The tax calculations
  • Penalties and interest
  • Whether there are factual or computational issues worth challenging

The headline assessment number matters, but understanding how EDD arrived at that number is usually more important at this stage.

Do Not Put an EDD Notice of Assessment Aside

If you disagree with an assessment, the time to review it is when it arrives. The formal petition period can be short, and preparing a meaningful challenge requires understanding both the audit findings and the underlying records.

Received an EDD Notice of Assessment?

Boulanger CPA and Consulting PC represents California employers in EDD payroll tax assessments, worker-classification disputes, petitions for reassessment, and employment tax appeals.

Schedule an EDD Assessment Consultation

EDD Notice of Assessment FAQs

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.

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.

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 the audit records, accounting issues, tax calculations, worker-classification issues, and the assessment and appeal process.