California Payroll Tax Audit Archives

How to Prepare for the California Payroll Tax Auditor to Interview Your Independent Contractors

April 23, 2026May 11, 2022 by Brotman Law

Once you have your files together for each independent contractor or if you have strong evidence that these people are independent contractors, the next phase is preparing your contractors to be contacted and potentially interviewed by the EDD auditor. You need to be careful here, very careful, because you are walking a fine line.

However, best practices in California dictate that you should gather about five people that are your best sources for 1099 information and create a reference sheet for the tax auditor to reach out and contact them.

The reaction that you are going to get from the tax auditor will be a mixed bag. Some auditors appreciate the help and some will buck a little because it appears that you might be trying to control how you are running their audit.

What Is an Employment Development Department (EDD) Audit?

April 23, 2026October 1, 2021 by Brotman Law

The Employment Development Department, or EDD, is one of the largest California state departments and is responsible for administering the payroll tax regulations for California businesses and individuals

Key Takeaways

Employment Training Tax provides funds for training employees in specifically targeted industries to make California more competitive in business. It is withheld at a rate of 0.1 percent with a taxable wage limit of $7,000 for 2021.
Personal Income Tax is levied on the income of California residents and income derived from the state by non-residents. The tax rate is determined by the employee’s Withholding Allowance Certificate (W-4 or DE 4). There is no taxable wage limit or maximum tax.
The Employment Development Department (EDD) and Franchise Tax Board (FTB) use these taxes to provide resources for state public services such as schools, public parks, roads, and health and human resources.

California Payroll Tax: SUI, ETT, SDI & PIT Employer Guide

April 23, 2026August 13, 2021 by Brotman Law

The California payroll tax structure for an employer in this state is based on four distinct taxes, commonly referred to as the CA SUI, ETT, SDI, and PIT payroll taxes. There are different rates for each of these taxes and the calculation methods are different as well.

What Happens During a California Independent Contractor Audit?

April 23, 2026August 4, 2021 by Brotman Law

The auditor’s first goal in an independent contractor audit is establishing a system and a pattern of routine for the business’s operations. For example, if we have a retail store and the retail store has two locations, in each location, we have anywhere between five and seven employees at a time.

Key Takeaways

The auditor’s first goal in an independent contractor audit is establishing a system and a pattern of routine for the business’s operations.
The EDD auditor will use that information to develop a pattern within the business on who the key members of the business are. Essentially, who are the key members of the business and what services do those individuals perform.
The auditor here is establishing a pattern of who the business’s workers are who function as employees. The reason for the auditor doing that obviously is to compare the employees to any independent contractors that the business may have.

How to Prepare for a 1099 Independent Contractor Audit

April 23, 2026April 23, 2021 by Brotman Law

In this article, we are going to dive into the nuts and bolts of how to really prepare for a 1099 Independent Contractor Audit and potential misclassification issues.

Key Takeaways

Gathering the 1099 independent contractor information
Google and Social Media Screening in 1099 Independent Contractor Audit Preparation
Other Key Documents in Preparing Supporting Documentation for the 1099 Independent Contractor Audit

How to Pre-Audit Yourself in Advance of Your EDD Payroll Tax Audit

April 23, 2026November 23, 2020 by Brotman Law

Tax attorney consultation at Brotman Law

Internally, we have developed the following list of issues based on our experience in past EDD payroll tax audits. Although not an exhaustive list, it will give you an idea of some of the mistakes that we have seen in preparing for audits and things to generally look out for.

Key Takeaways

Internally, we have developed the following list of issues based on our experience in past EDD payroll tax audits.
So, we have already outlined the four tests that the EDD payroll tax auditor will go through in an audit: payroll taxable wages verification, payroll tax verification, general ledger and bank statement review, and independent contractor verification.
The very first thing you do is you take your 1099s and you make a list of the people on 1099s and you take your W2s and you make a list of the W2s, and you check that against the payroll journal, and/or any other information/records that you have for payroll.

What Records are Required for a California Payroll Tax Audit?

April 23, 2026November 23, 2020 by Brotman Law

Documents You Will Need for the Tax Auditor

What usually happens in a payroll tax audit is that the auditor will send you a laundry list of documents that they want to examine. Of the different types of audits, payroll tax audits are usually the ones that have the most flexibility because in a payroll tax audit they are basically running tests.

Key Takeaways

What usually happens in a payroll tax audit is that the auditor will send you a laundry list of documents that they want to examine.
The auditors are running a test on a payroll that was paid, taxable wages, the tax that was paid, payroll tax, expenses that are on the general ledger, and independent contractors.
The auditors are going to ask for three years of records including tax returns, payroll tax returns, internal accounting documents and any other information that they might need. Just remember to be cooperative.