Fillable Printable Information Sheet: Personal Income Tax Adjustment Process (De 231W)

Information Sheet: Personal Income Tax Adjustment Process (De 231W)

PERSONAL INCOME TAX ADJUSTMENT PROCESS

If the Employment Development Department (EDD) audits the

employer’s business records and determines that the employer

failed to properly withhold California Personal Income Tax

(PIT) from the wages paid to the workers, the EDD will issue

an assessment for the PIT that should have been withheld.

However, the employer has the opportunity to gain relief

from some or all of the PIT liability, and related penalties and/

or interest, through the use of the Claim for Adjustment or

Refund of Personal Income Tax, DE 938P. The Declaration,

DE 6028P, may be used to gain relief from some or all of the

PIT assessed and some of the interest, however, the penalties

will not be reduced. Please read the following information

carefully before completing these forms.

NOTE:The relief granted for PIT through the use of the

following methods does not adjust the assessed liability for

Unemployment Insurance, Employment Training Tax, or

State Disability Insurance.*

FIVE METHODS FOR ADJUSTING A PIT ASSESSMENT

PIT may be adjusted using one or more of the following

methods:

1. Recalculation of PIT Based on the Worker’s Federal

or California’s Employee Withholding Allowance

Certiﬁcate, Form W-4/DE 4

The employer may reduce the PIT assessment, and

related penalties and interest, by recalculating the

amount of PIT that should have been withheld.

If the auditor assessed PIT at a ﬂat rate or estimated

at six percent (6%) due to the unreported wages

being unallocated and/or the payroll periods not

clearly identiﬁed, and the employer has a signed

Form W-4 or DE 4 from the worker during the time

that he or she worked for the employer, the employer

may recalculate their PIT withholding. Use the ﬁling

status and number of allowances on the Form W-4

or DE 4 and the appropriate tax withholding table

in the California Employer’s Guide, DE 44, for the

year(s) of the assessment. The employer must submit a

completed worksheet for each worker assessed when

the employer recalculates PIT using this method.

Prior year PIT withholding schedules are available

on the EDD website at www.edd.ca.gov/

Payroll_Taxes/Rates_and_Withholding.htm.

*Includes Paid Family Leave (PFL)

2. Recalculation of PIT Based on Single With Zero

Allowances (S-0)

If the employer does not have a signed Form W-4 or

DE 4 from the worker, the employer may use

a ﬁling status of Single with zero allowances

(S-0) to recalculate the PIT. This may reduce

the amount assessed below the estimated

level. The employer must submit a completed

worksheet for each worker assessed when the

employer recalculates PIT using this method.

3. Recalculation of PIT Using a Reasonable Sample

If the auditor included a large number of workers in

the PIT assessment, the employer may use a reasonable

sample to recalculate the PIT that should have been

withheld.

The sample must include at least four representative

pay periods during the most recent calendar year for

which the unreported wages are equal to or greater

than the average unreported wages per pay period.

The employer must schedule the individual wage

payments for the four pay periods, calculate the

percentage of PIT that should have been withheld

from each wage payment based on the Form W-4/

DE 4 or S-0 ﬁling status, and apply that percentage to

the total unreported wages for the four pay periods to

recalculate the total PIT.

The EDD will adjust the assessment if the PIT

percentage from the sample is less than the ﬂat rate

percentage used in the audit assessment.

4. Certiﬁcation by the Worker That the Wages Were

Reported to the Franchise Tax Board (FTB) on a

DE 938P

The employer may be relieved of PIT assessed for any

worker who certiﬁes that he or she reported the wages

on his or her California state income tax return. The

worker must complete the DE 938P, items (5)

through (7).

This certiﬁcation does not relieve the employer from

penalties for failure to withhold PIT, or from certain

portions of the interest on the PIT assessment. For

this reason, it may be to the employer’s advantage to

also recalculate PIT using one of the other methods

described above.

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5.Declaration That the Workers Were Issued a Federal Form

1099, Form W-2, or Schedule K-1 on the DE 6028P**

The employer may be relieved of the PIT assessed if

the employer can declare under penalty of perjury that

the workers were issued a Form 1099-MISC, Form W-2

(which includes state and local income tax information

for the State of California), or Schedule K-1, and that

the forms were ﬁled timely with the Internal Revenue

Service (IRS) and/or the FTB. Be advised that the

DE 6028P is signed under penalty of perjury.

If the employer can make this declaration under

penalty of perjury, the DE 6028P should be completed

and submitted to the auditor. The EDD may verify with

the workers, the IRS, or the FTB that the forms were

furnished and ﬁled.

If your Form(s) W-2 are ﬁled by your agent, it is your

responsibility to verify that the electronic Form(s) W-2

ﬁle contains information about state and local income

taxes for the State of California. If the Form(s) W-2 ﬁles

contain another state’s income tax information or did

not contain any state income tax data, the DE 6028P

process should not be used. You may request to be

relieved of the PIT assessed through any of the other

four available methods.

This declaration does not relieve the employer from

penalties for failure to withhold PIT, or from certain

portions of the interest on the PIT assessment. For

this reason, it may be to the employer’s advantage to

also recalculate PIT using one of the other methods

described above.

Note: Even if the employer uses the worker certiﬁcation

adjustment (Method 4), or declaration (Method 5), it may

be to the employer’s advantage to recalculate the PIT using

Method 1, 2, or 3 in order to receive the greatest possible

adjustment to the PIT assessment.

RECALCULATION OF INTEREST

Interest will be recalculated when the worker certiﬁes on

the DE 938P that he or she paid quarterly estimated taxes

to the FTB. Interest will also be recalculated when the

worker certiﬁes that the wages were reported on his or her

California state income tax return. Generally, the employer

is relieved of any interest charged for periods after the

worker paid the taxes or ﬁled the return.

SPECIAL INSTRUCTIONS FOR CURRENT YEAR AND

LAST COMPLETED CALENDAR YEAR PIT ASSESSMENT

DE 938P

If the EDD assessed PIT on wages for the current year and/

or prior completed calendar year(s), the employer must

prepare separate DE 938P(s). The employer may obtain

the worker’s certiﬁcation and signature after the worker

has ﬁled his or her California state income tax return with

FTB for the current and/or last completed calendar year.

However, the employer may submit DE 938P(s) at any time

for those workers who have ﬁled quarterly estimates with

FTB and have signed a DE 938P.

TIME LIMITS TO FILE CLAIMS FOR REFUND

Filing forms DE 938P and DE 6028P with the EDD

constitutes a claim for refund under Section 1178 of the

California Unemployment Insurance Code (CUIC). There is

no time limit for submitting these forms when the assessed

PIT has not been paid. However, if the assessed PIT has

been paid, Section 1178 of the CUIC provides strict time

limits for ﬁling a claim for refund with EDD. Claims for

refund must be ﬁled either:

• Within three years from the last day of the calendar

month following the close of the calendar quarter for

which the overpayment was made.

• Within six months after the assessment becomes ﬁnal.

• Within 60 days from the date of overpayment,

whichever period expires later.

NO EXTENSION OF TIME TO FILE PETITION FOR

REASSESSMENT

A complete explanation of the employer’s appeal rights is

included with the ofﬁcial Notice of Assessment, DE 6517.

If the employer chooses to ﬁle a petition for reassessment,

the employer must ﬁle it within 30 days from the date of

the assessment.

The PIT adjustment process DOES NOT extend the time

limit for the employer to ﬁle a petition for reassessment. If

the employer wishes to ﬁle a petition for reassessment, the

employer must ﬁle it within 30 days from the date of the

assessment. Refer to Section 1222 of the CUIC.

Note: If the employer failed to pay the assessment amount

on or before the assessment becomes ﬁnal, a ﬁfteen percent

(15%) penalty of the delinquent contributions will be

added pursuant to Section 1135 of the CUIC. Additionally,

failure to ﬁle a petition and untimely payment of the

assessment amount will result in state tax liens being ﬁled.

ADDITIONAL INFORMATION

When the employer has completed the DE 938P(s) and/or

DE 6028P(s), the forms should be sent to the ofﬁce shown

on the front. If you need assistance in completing any part

of the PIT adjustment process, please contact the auditor.

The EDD is an equal opportunity employer/program.

Auxiliary aids and services are available upon request to

individuals with disabilities. Requests for services, aids,

and/or alternate formats need to be made by calling

888-745-3886 (voice) or TTY 800-547-9565.

**The DE 6028P only applies to audits completed after July 1, 2008.

This information sheet is provided as a public service and is intended to provide nontechnical assistance. Every attempt has been made

to provide information that is consistent with the appropriate statutes, rules, and administrative and court decisions. Any information that

is inconsistent with the law, regulations, and administrative and court decisions is not binding on either the Employment Development

Department or the taxpayer. Any information provided is not intended to be legal, accounting, tax, investment, or other professional advice.

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