On March 10, 2023, the California Department of Financial Protection closed Silicon Valley Bank (SVB) and appointed the Federal Deposit Insurance Corporation (FDIC) as receiver due to SVB's inadequate liquidity and insolvency. SVB's sudden collapse has California employers, particularly those in the tech industry, worried about making timely payroll and payroll tax payments.

California's Employment Development Department (EDD), the agency responsible or collecting and administering payroll taxes, announced that it would waive any penalty for late payroll tax for companies that did business with SVB. Employers are charged a penalty of 15% plus interest on late payroll tax payments.  

Employers can submit a written waiver request through e-Services for Business or in writing establishing good cause and the reasons for the untimeliness. Submitting the penalty waiver request, however, does not stop interest from accruing on the late payroll tax, nor does it stop the billing and collection process. That process continues while the request is reviewed. To mitigate financial exposure, e.g., avoid the accrual of interest, employers should pay all outstanding amounts due, including any penalty owed. If the EDD later determines that the penalty should be waived, and the employer has already paid that penalty, it will issue a refund or apply the amount paid to any outstanding liability. 

The potential for waiver of payroll tax penalties does not exempt employers from discharging other payroll obligations, such as the timely payment of wages. Employers should connect with counsel to discuss the company's potential risks in the aftermath of SVB's collapse.