OVERVIEW OF EDD EMPLOYMENT TAX EVASION Investigation Division Criminal Tax Evasion Unit EDD Frank Waldschmitt
WHAT IS EDD? The Employment Development Department (EDD) is the State agency responsible for the administration of Unemployment and Disability Insurance benefits, and collect personal income taxes for the State of California. In addition, EDD is responsible for the administration and enforcement of the Employment Tax laws of the State of California as contained in the California Unemployment Insurance Code (CUIC).
WHO IS AN EMPLOYER? An employer is a person or legal entity that hires one or more persons to work for a wage, salary, or other compensation.
DEFINITION OF WAGES AND OTHER COMPENSATION All payments made to employees for personal services performed, including, but not limited to: cash payments salaries commissions bonuses wages disguised as loans meals and lodging
WHO IS AN EMPLOYEE? An “employee” includes any of the following: Any officer of a corporation, or any individual who is hired by an employer to perform services when the employer has the right to exercise control over the manner and means by which the individual performs his or her services.
621.5 CUIC STATUTORY EMPLOYEE (a) Employee also means any individual who is an employee of a person who holds a valid state contractor’s license. (b) Employee shall also mean any individual who is an employee of a person who is required to obtain a valid state contractor’s license.
EMPLOYER REQUIREMENTS Employers are required to register with EDD by filing a registration form (DE 1), within 15 days of paying $100 in wages. (CUIC 1086) Employers are required to submit all tax payments by completing a Payroll Tax Deposit coupon (DE 88). (CUIC 2110) Employers are required to report employee wages to EDD by filing a Quarterly Wage and Withholding Report (DE 9). (CUIC 1088)
ADDITIONAL REQUIREMENTS Maintain wage, earning, deduction, and withholding records on every employee. (CUIC 1085) Provide earning statements (pay stubs) to each employee, every payday Retain records and returns for at least four years.
WHAT ARE EMPLOYMENT TAXES? Generally, there are four employment taxes to be remitted to EDD on a quarterly basis: Employment Training Tax Unemployment Insurance Tax Disability Insurance Tax Personal Income Tax
DUE DATES State Period Due by DE 9 1st Quarter April 30 Jan, Feb, Mar DE 9 2nd Quarter July 31 Apr, May, Jun DE 9 3rd Quarter October 31 Jul, Aug, Sep DE 9 4th Quarter January 31 Oct, Nov, Dec
UNDERGROUND ECONOMY Underground economy is a term that refers to those businesses that deal in cash and/or use other schemes to conceal their activities and their true tax liability from government licensing, regulatory, and taxing agencies; also referred to as tax evasion, tax fraud, cash pay, payments under-the-table, and off-the-books.
HOW TAX FRAUD IS COMMITTED “ Cash Payers ” scheme- A cash payer could be an employer, or someone acting as an cash runner. The runners will cash the employer checks and pay the employees. Employer does not withhold deductions from workers’ pay. “ The Keepers” scheme - Employer defrauds both their employees and EDD. Employer withholds payroll taxes from employees’ pay but does not pay taxes to State or Federal government.
HOW TAX FRAUD IS COMMITTED “ The Tokens” Scheme- Employer reports a partial number of employee’s and wages to EDD to appear to be in compliance. This is usually because an employer has public contracts that requires submission of Certified payroll reports.
CONSEQUENCES OF TAX FRAUD Employers gain a distinct advantage over their competitors. Employers avoid tax and insurance expenses associated with payroll. Employers also reduce the cost of doing business by failing to pay employer contributions. Employees Unemployment or Disability Insurance benefits may be delayed or denied because they are not properly reported. Employees don’t have check stubs, W-2’s, or a way to verify their earnings.
CUIC VIOLATIONS 2117.5 Any person who, within the time required by this code, willfully fails to file any return or report, or to supply any information with intent to evade any tax imposed by this code, or who, willfully and with like intent, makes, renders, signs, or verifies any false or fraudulent return, report, or statement or supplies any false or fraudulent information, is punishable by imprisonment in the county jail….or in the state prison,….
CUIC VIOLATIONS 2118.5 Any person required by this code to collect, account for, and pay over any tax or amount required to be withheld who willfully fails to collect or truthfully account for and pay over the tax or amount shall, in addition to other penalties provided by law... be guilty of a felony.
HOW TO DETECT TAX FRAUD? Indentify and interview witnesses. Employers that report partial wages usually pay wages by issuing paychecks in which payroll deduction statements (check stubs) are attached. These employees are generally listed under certified payroll reports. Surveillance of business or job site to determine number of employees and activities. Cash paying employers usually have a set payday.
HOW TO DETECT TAX FRAUD? Public information—skip tracing through internet. California State License Contractor Board www.cslb.ca.gov http://pipl.com/ California Secretary of State www.sos.ca.gov California Department of Industrial Relations www.dir.ca.gov People search http://pipl.com
REPORTING FRAUD To report Unemployment Insurance, Disability Insurance, or Paid Family Leave fraud: Submit a Fraud Reporting Form on-line at www.edd.ca.gov, or Call: 1-800-229-6297 To report Payroll Tax fraud: Submit a Fraud Reporting Form on-line. Or Call: 1-800-528-1783 , E-mail: ueo@edd.ca.gov All allegations of fraud are taken seriously, and you can remain anonymous.
REPORTING FRAUD To report other types of fraud: If your allegation involves fraud in the following programs please call the Agencies listed below. EDD does not handle these types of fraud. Workers Compensation - Contact the California State Department of Insurance at 1-800-927-4357 . Social Security Insurance - Contact the Social Security Administration at 1-800- 269-0271 .
How to prepare a TAX FRAUD Referral? Who : Who is the responsible party? A single person, a business, or a corporation, a trust. Printout : CSLB, SOS, bids, etc. What : What type of violations, and scheme? Identify willing and non willing witnesses. Where : The physical description of the location where violations occurred and where evidence may be found. When: EDD criminal case 4 years Statue of Limitations from the date of discovery. EDD civil case 3 years Statue of Limitations
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