Yes. California’s Unemployment Insurance Code makes it a misdemeanor for an employer to fail to withhold state income tax from wages as required, or to fail to pay over tax that was withheld, even with no intent to evade. If the failure to collect the tax, or to truthfully account for and pay it over, is willful, a separate section makes it a felony.

The duty behind the charge

Unemployment Insurance Code section 13020 requires employers to deduct and withhold California income tax from employees’ wages for each payroll period, in amounts set by Franchise Tax Board rules, with limited exceptions. Section 13021 then requires the employer to file its returns and reports and pay the withheld tax over to the department on a set schedule, which can be quarterly, monthly, or keyed to the employer’s federal deposit deadlines, depending largely on how much is withheld. In this code, “department” means the Employment Development Department (section 133).

Four sections, four levels of exposure

  • Failing to withhold or pay over: a misdemeanor. Section 2118 covers any person or employer who “fails to withhold, pursuant to Section 13020, or fails to pay over any tax withheld,” and it applies “with or without intent to evade.” The penalty is a fine of up to $1,000, imprisonment for up to one year, or both.
  • Willful failure: a felony. Section 2118.5 covers a person required 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” it. The statute calls this a felony, punishable by a fine of up to $20,000, imprisonment under Penal Code section 1170(h), or both, on top of any other penalty the law provides.
  • Not filing, or filing falsely: a misdemeanor plus a civil penalty. Section 2117 covers failing to file a required return or report or to supply required information, and making or supplying a false or fraudulent return, report, statement, or information, again with or without intent to evade. It carries a civil penalty of up to $1,000, plus a misdemeanor fine of up to $1,000, imprisonment for up to one year, or both.
  • Not filing, or filing falsely, to evade the tax: a wobbler. Section 2117.5 covers willfully failing to file a return or report, or to supply information, “with intent to evade any tax imposed by this code,” and willfully making a false or fraudulent return, report, or statement with that same intent. It is punishable by up to one year in county jail, or state prison, or a fine of up to $20,000, or both.

Two sentencing details matter. Because section 2118.5 names no term, Penal Code section 1170(h) sets it at 16 months, two years, or three years, generally served in county jail; state prison applies only in the situations that subdivision lists, such as a prior or current serious or violent felony conviction. And because section 2117.5 allows either state prison or county jail, Penal Code section 17(b) lets it be treated as a misdemeanor in specific situations, for example when the prosecutor files it as one or the court declares it one.

Why the chapter’s general penalty does not raise these

Section 2122 sets a general penalty for violations of this chapter of the code: up to one year in county jail, or state prison, or a fine of up to $20,000, or both. It opens with “Except as provided in Sections 2117, 2117.5, 2118, and 2118.5,” so those four sections are punished on their own terms. A conviction under section 2118 stays within that section’s misdemeanor range; felony-level exposure comes from section 2118.5 (a willful failure to pay over) or section 2117.5 (filing failures or false returns meant to evade the tax), not from section 2122.

What usually separates the misdemeanor from the felony

Using withheld tax as operating cash instead of paying it over on time is conduct section 2118 reaches without any intent to evade. Whether it is also willful under section 2118.5 depends on the evidence of what the owner knew and chose, so these facts tend to matter most:

  • Whether tax was actually withheld from paychecks, or never withheld at all.
  • When the shortfall began, who at the business knew about it, and what was decided about the money.
  • Whether returns and reports were filed on time and accurately, since sections 2117 and 2117.5 turn on the filings.
  • Any partial payments, payment arrangements, or communications with EDD.
  • How many pay periods and employees were affected.

An employer’s case, not a claimant’s

This page covers an employer’s duty to withhold and pay over tax. A worker or claimant accused of giving false information to get unemployment benefits faces a different question, governed by other sections of the code and a separate EDD process.

If EDD or a prosecutor has raised unpaid withholding with your business, Law Offices of David S. Chesley can review your payroll records, filings, and correspondence with you and identify which of these sections actually fits the facts. Reach the firm at (800) 755-5174.