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Employment and payroll tax compliance is particularly challenging for businesses in Oakland. Known for its diverse and dynamic economy, even slight errors in employment tax filings can translate to devastating fines and penalties. Issues such as the failure to pay employment taxes, the misclassification of workers, or the non-filing or delinquent filing of employment tax forms can all trigger an IRS audit. For California payroll taxes, this could mean an employment tax audit by the California Employment Development Department (EDD). Moreover, if there are indicators of tax fraud, the employer can become the target of an IRS criminal tax investigation.
Whether you are a longtime resident of Oakland, are a local business owner, or recently moved to Oakland from another state or country and aren’t sure of your employment filing obligations, turn to the Tax Law Office of David W. Klasing for comprehensive personal and business tax support. To arrange a reduced-rate consultation, contact us online here or call our Oakland tax office at (510) 764-1020.
California Employment Development Department (EDD) Audit Representation
Payroll taxes and worker classification issues are the main areas of concern of the California Employment Development Department (EDD). Each employer must withhold payroll and federal and state income taxes from their employees’ paychecks, hold that money in trust, and remit it to the correct agencies. Audits by the EDD may occur if you fail to collect payroll taxes or if you fail to remit them to the proper authorities. They are also quite common if a worker you were paying as an independent contractor on 1099 makes an unemployment claim and represents that they should have been paid as an employee.
Why is Worker Classification Important?
Most issues related to payroll taxes relate to the difference between an employee and an independent contractor. You must collect payroll taxes for your employees but not for independent contractors working for you. The EDD may believe that you are improperly classifying those who should be considered employees as independent contractors and that you owe substantially more in payroll taxes, draconian penalties, and interest. Many complex factors relate to who is and is not qualified as an employee. Our experienced tax lawyers will help assess such a situation and fight against improper classifications by the EDD.
What Are the Common Employment Tax Issues?
Whether your California or federal employment tax matter involves fringe benefits, unemployment taxes, worker classification audits, EDD audits, payroll accounting methods, the Additional Medicare Tax, trust fund recovery penalties, accuracy-related penalties, seasonal workers, tax evasion charges, or related issues, the dual-licensed Oakland Employment Tax Attorneys & CPAs at the tax law offices of David W. Klasing possess the knowledge and experience to help find a resolution. Issues that can increase the odds of facing an employment tax audit or exacerbate the consequences of such an audit include:
- Misclassification of workers
- Cash-Intensive Business / Paying Employees in Cash
- Business funds to cover personal expenses
- Misclassification of workers
- Cash-Intensive Business / Paying Employees in Cash
- Business funds to cover personal expenses
How Can Our Oakland Business and Employment Tax Lawyers Help?
Providing a helpful product or service is only half of running a successful business. In addition, business owners must also be mindful of California state and federal business and employment tax provisions, which can impact their bottom lines. However, when you are busy operating a company, you simply don’t have time to analyze the potential tax ramifications of every business decision.
Our Oakland business and employment tax lawyers can help you make advantageous choices for your business while simultaneously protecting you from inadvertently violating Federal and California state tax laws. No matter which stage of its life cycle your business has reached – from entity selection and formation, business sales or acquisitions, through dissolution and liquidation – our Tax Lawyers and CPAs can give you the tools to make informed, pragmatic decisions about how to handle the company’s finances on tax-advantaged short-term or long-term basis.
What Types of Business Entities Do We Serve in Oakland?
We work with:
- C corporations
- S corporations
- Limited liability companies (LLCs)
- General partnerships (GPs)
- Limited partnerships (LPs)
- Limited liability partnerships (LLPs)
- Limited liability limited partnerships (LLLPs)
Whether you want to expand, pass down, merge, sell, or start a company, our dual-licensed Oakland Domestic and International Business and Tax Attorneys & CPAs are poised to protect your interests. Contact our Oakland office at (510) 764-1020 or contact us here online.
What Employment Taxes Are Employers Required to Pay in Oakland?
From small family-owned businesses to large corporations, all employers in Oakland are responsible for various federal and California state employment taxes. Employers must withhold, match in some cases, and deposit these taxes with the federal government, including:
Federal Employment Taxes
- Additional Medicare Tax (AMT): Withheld from certain high-earning employees’ wages.
- Federal Income Tax: Withheld from wages.
- Federal Unemployment (FUTA) Tax: Paid by the employer only (not withheld from wages).
- Medicare Tax: Withheld from wages and matched by the employer.
- Self-Employment Tax: Equivalent to Medicare and Social Security taxes for self-employed individuals.
- Social Security Tax: Withheld from wages and matched by the employer.
State Employment Taxes
In addition to meeting IRS requirements, Oakland employers are also responsible for state payroll taxes administered by the California Employment Development Department (EDD), including:
- California Personal Income Tax (PIT): Withheld from wages.
- Employment Training Tax (ETT): Employer contribution.
- State Disability Insurance (SDI) Tax: Withheld from wages.
- Unemployment Insurance (UI) Tax: Employer contribution.
Understanding and complying with these tax obligations is crucial for Oakland businesses to avoid penalties and ensure smooth operations. David W. Klasing, a dual-licensed Tax Attorney & CPA with nearly three decades of experience, is committed to preserving your best interests in worker classification audits and against allegations that you owe payroll taxes. Whether you have concerns about corporate tax liability or employment tax, contact us online here or call our Oakland tax office at (510) 764-1020.
What Are the Penalties for Failure to Pay Employment Taxes in Oakland?
Civil Penalties
Most civil penalties are assessed in addition to any tax due. Civil penalties assessed for employment tax purposes include:
- Failure to Pay Taxes Due: This consists of the trust fund recovery penalty;
- Failure to File a Timely Tax Return: Penalties for not filing your tax return on time;
- Penalty for Paying with a Bad Check: If a payment is made with a check that cannot be processed;
- Accuracy-Related Penalty: For underpayment of tax due to negligence;
- Aiding and Abetting the Understatement of Tax Due: Penalty for assisting in understating the tax owed.
Criminal Penalties
Criminal penalties concerning employment taxes are punishable by fines, imprisonment, or both. These penalties apply to:
- Willful Attempts to Evade or Defeat Employment Taxes: Actions taken to avoid paying employment taxes intentionally;
- Willful Failure to Collect Taxes: Not collecting taxes as required;
- Failure to Pay Taxes or File Employment Tax Returns: Neglecting to pay or file the necessary tax returns.
These criminal provisions include:
- Willful Failure to Collect and Pay Over Taxes
- Failure to Pay Over Taxes After Notice
- Failure to Furnish W-4 Information
- Furnishing a False W-4 Form
- Supplying False Withholding Information
These offenses generally have a statute of limitations of three years. Understanding these penalties and ensuring compliance can prevent significant legal and financial consequences. Whether you are concerned about a criminal tax investigation, need assistance preparing for a payroll tax audit, or simply wish to review your company’s payroll tax procedures for accuracy and efficiency, rely on our dual-licensed Oakland Employment Tax Attorneys and CPAs at the Tax Law Office of David W. Klasing for award-winning support.
Can an EDD Employment Tax Audit Lead to a Criminal Tax Investigation?
Employment tax audits can result in significant civil and criminal tax consequences for businesses and individuals, especially in Oakland, CA, where a diverse and growing economy presents unique challenges for employers. The IRS and California’s Employment Development Division (EDD) actively pursue cases of intentional misclassification or payroll fraud, which can lead to severe civil tax penalties and, in some cases, criminal tax prosecution. Below are key areas where businesses in Oakland may face criminal exposure during employment tax audits.
What Happens if I Misclassify My Employees or Commit Payroll Fraud in Oakland?
In Oakland, a vibrant city with a wide range of industries, misclassifying workers as independent contractors can expose businesses to significant risks. Employers in sectors such as technology, construction, and services may face worker classification audits by the EDD and possibly the IRS if misclassified workers file for unemployment benefits after being terminated.
Employers sometimes misclassify their workers as independent contractors instead of employees. When this happens, the employer typically does not withhold or contribute payroll taxes such as Social Security and Medicare. However, if a worker is classified as an employee, the employer must pay half of the worker’s Social Security and Medicare taxes. In addition, the employer must withhold amounts for federal income taxes, Social Security, Medicare, and state taxes, holding these funds in trust on behalf of the employee to submit to the taxing authorities.
If an employer misclassifies workers, the IRS and EDD can assess both current and back taxes on the amounts the employer should have paid for payroll taxes, and this amount can be substantial. This is particularly important in Oakland, where compliance with both California state and federal tax obligations is strictly enforced. If the misclassification is found to be intentional, civil penalties can escalate to criminal tax charges.
Employment tax audits in Oakland may escalate into exponentially severe criminal tax investigations, particularly when there is evidence of willful fraud or misconduct. Two types of audits that pose the highest risk for Oakland businesses are eggshell and reverse eggshell audits.
What is an Eggshell Audit?
An eggshell audit is a civil audit in which the return(s) under examination contains a material understatement of income, overstatement of deductions, or credits claimed the taxpayer was not entitled to. These errors lead to a lower tax liability than what would have been owed if an accurate return had been filed. In Oakland, businesses may face this type of employment tax audit, and it is crucial to understand that while errors may result from negligence, which could lead to a 20% negligence penalty, they can also be caused by willful intent to defraud the government. In cases of willful misconduct, businesses may face a 75% fraud penalty or even 3 to 5 years in jail.
What is a Reverse Eggshell Audit?
A reverse eggshell audit is even more dangerous and involves a criminal tax investigation disguised as a civil audit. These audits are common in Oakland, where local and federal authorities work together to identify tax fraud. In a reverse eggshell audit, the taxpayer and their representative are unaware that the auditor is collaborating with the IRS’s Criminal Investigation (CI) division. Reverse eggshell audits typically begin when a civil examiner refers the case to a Fraud Referral Specialist, who works the case for a handoff to a special agent in CI. In these cases, any false or misleading statements made during the audit can trigger further criminal charges.
Can I Be Personally Liable for My Company’s Delinquent Payroll Taxes in Oakland?
Yes, in Oakland, as elsewhere in California, the IRS and EDD can hold individuals personally liable for unpaid payroll taxes if they are considered responsible persons who acted willfully. Responsible persons are often business owners, corporate officers, or managing partners, but in Oakland’s diverse industries, employees such as bookkeepers or office managers may also be considered responsible persons if they have authority over payroll tax decisions.
Any person in Oakland with the authority to decide whether payroll taxes are paid will always be considered a responsible person. This includes individuals who oversee day-to-day operations, such as business owners or corporate officers. Employees involved in ensuring that employment taxes are paid, even if they do not make the final decision, are also at risk. This is especially true if the employee has the authority to make payments and prevent tax defaults. On the other hand, employees and investors who lack the authority to write checks or have duties unrelated to payroll tax payments are less likely to be considered responsible.
Although the IRS has guidelines for determining responsible persons, there are no guarantees that an individual in Oakland will not be deemed responsible. Even individuals who did not make the final decision but had the theoretical authority to influence payroll tax payments may be held liable. Shockingly, there have been cases where the IRS has considered someone a responsible person even after they argued against non-payment of payroll taxes and quit their job over the dispute.
Contact Our Oakland Employment Tax Attorney Today
If your business is facing an employment tax audit or another tax enforcement action by the IRS or EDD, the Tax Law Offices of David W. Klasing can work to guide your company through the audit process. We are experienced in working with both state and federal auditors and can successfully navigate the challenges an audit presents. To schedule a reduced-rate consultation with one of our experienced Oakland tax professionals, call (510) 764-1020 or contact us online today.
For a reduced-rate initial consultation, call our Oakland tax office at (510) 764-1020 or contact the Tax Law Office of David W. Klasing online here. Please note that our Oakland office is by appointment only.
Our Oakland Office is Conveniently Located at:
505 14th St,
Oakland, CA 94612
(510) 764-1020
