Article
3 min read
Comprehensive Guide to Payroll Taxes in California
US payroll
Author
Shannon Ongaro
Published
August 04, 2023
Last Update
August 12, 2024
Table of Contents
California's Progressive Tax System
Payroll Tax Obligations
Paying unemployment insurance
Withholding personal income tax from your California employee
Withholding state disability insurance from your California employee
Paying the employment training tax
Paying your California workers’ compensation
Payroll Tax Due Dates in California
How to Submit Payroll Taxes
Simplify US payroll tax compliance with Deel
Key takeaways
- Unemployment insurance is a key consideration for employers in California to remain compliant with state laws and regulations.
- Other important payroll taxes include personal income tax and employment training tax, both of which the employer is responsible for withholding.
- Employers must also meet various insurance requirements, such as state disability insurance and workers’ compensation.
As an employer, there are a few key responsibilities to consider to ensure compliance with state law. One of these considerations includes payroll taxes and various employer costs. However, each US state has different rules and regulations—including California.
As a starting point, this guide covers unemployment insurance, personal income tax, state disability insurance, and workers’ compensation in California.
In California, businesses are subject to both federal FICA taxes (Medicare and Social Security) and various state payroll taxes. The state's progressive tax system means that as employees' earnings increase, so do their tax contributions.
California's Progressive Tax System
California's tax system is designed to increase tax rates with income. This progressive structure affects both employees and employers, especially as businesses expand their workforce.
Payroll Tax Obligations
Employers in California must navigate multiple taxes, each with specific rates and responsibilities. The California Employment Development Department (EDD) administers these taxes, and it is crucial for employers to report new hires to the California New Employee Registry within 20 days.
| Tax Type | Who Pays | Tax Rate | Taxable Wage Limit | Maximum Tax |
|---|---|---|---|---|
| Unemployment Insurance Tax (UI) | Employer | 1.5% to 6.2% | First $7,000 per employee/year | $434 per employee/year |
| Employment Training Tax (ETT) | Employer | 0.1% | First $7,000 per employee/year | $7 per employee/year |
| State Disability Insurance Tax (SDI) | Employee | 1.1% (as of 2024) | No limit | No maximum |
| Personal Income Tax (PIT) | Employee | 0% to 4.4% based on Form W-4 | No limit | No maximum |
Paying unemployment insurance
Unemployment insurance (UI) in California is a state-run program designed to provide temporary financial assistance to eligible individuals who have lost their jobs through no fault of their own. It is aimed at helping unemployed workers meet their basic needs while actively seeking new employment opportunities.
The UI rate schedule and the amount of taxable wages are determined annually, and California notifies employers of their new rate every December. Unemployment insurance is paid by the employer and managed through an online portal.
For more information about unemployment insurance in the state, as well as other payroll withholdings mentioned in this guide, the California Economic Development Department provides valuable information.
Withholding personal income tax from your California employee
On top of withholding federal taxes such as Medicare and Social Security taxes, employers in California are also responsible for withholding and paying state-specific taxes from the employee’s payroll. One of these employer payroll taxes in California is personal income tax (PIT), which is a tax on the income of California residents.
PIT is a type of payroll withholding that is deducted from the employee’s wages and is withheld by the employer. California PIT is withheld from employees’ pay based on the Employee’s Withholding Allowance Certificate (Form W-4 or DE 4) on file with their employer.
PIT is determined yearly, and the updated rate can be found on the California Employment Development Department’s website.
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Withholding state disability insurance from your California employee
State disability insurance tax (SDI) provides temporary benefit payments to workers for non-work-related illness, injury, or pregnancy. SDI is not to be confused with workers’ compensation, which is a different form of insurance.
SDI also provides paid family leave (PFL) benefits that offer partial wage replacement to people who can’t work because they have family responsibilities. Qualifying responsibilities include caring for a seriously ill family member, bonding with a new child, or participating in a qualifying event due to a family member’s military deployment.
SDI is deducted from the employee’s wages before being withheld and paid by the employer. The rates are determined yearly, and the most recent rate is stipulated on the California Employment Development Department’s website.
Paying the employment training tax
Employment training tax (ETT) is an employer-paid tax that provides funds to train employees in targeted industries to make California businesses more competitive.
Like other payroll taxes, the employment training tax is determined yearly, and you can view the rate on the California Employment Development Department’s website.
Paying your California workers’ compensation
Worker’s compensation is another required payment in California, even if you only have one employee in the state.
Unlike state disability insurance, where the insurance provides payment to workers for non-work-related illness or injury, workers’ compensation is insurance for an employee’s injury while performing their job. The insurance provides temporary financial relief to the injured employee while protecting the employer from extra liability.
Employers can buy insurance through the State Compensation Insurance Fund (State Fund) or a commercial insurance carrier. For more information, you can consult California’s Department of Industrial Relations and compare rates of the top 50 carriers in the state.
Payroll Tax Due Dates in California
- Quarterly UI and ETT Payments: Due on April 30, July 31, October 31, and January 31 (or the next business day if a weekend/holiday).
- More Frequent Payments for SDI and PIT: The frequency of payments depends on the amount of state income tax withheld and the federal income tax deposit schedule. Late payments are subject to a 15% penalty plus interest.
Continuous Compliance™
How to Submit Payroll Taxes
- e-Services: For quick and secure payroll tax management.
- Express Pay: Allows payments without enrollment.
- Mail: Special waiver from EDD required to avoid penalties.
- Other Options: Include FSET for bulk transmissions, EFT (ACH debit/credit), credit card, and PayNearMe for cash payments.
Note:
- Audit Possibility: The California Employment Development Department (EDD) conducts audits to ensure correct tax payments.
- Nonprofit Organizations: Most nonprofits are responsible for all four payroll taxes. Section 501(c)(3) nonprofits have the option to pay UI taxes like businesses or reimburse EDD for UI benefits paid.
- Local Tax Laws: California has varying sales and use tax rates by jurisdiction, in addition to a 7.25% statewide rate. Examples include San Francisco (8.63%) and Los Angeles (9.5%).
Simplify US payroll tax compliance with Deel
Employers in California can benefit from this introductory guide on certain payroll taxes in the state, but there’s a lot more to understand to remain compliant. To streamline the process and ensure compliance, companies turn to Deel’s convenient payroll solution.
As a centralized payroll and HR platform, Deel is a comprehensive platform for managing payments, taxes, worker classification, and more. Request a demo and see how we help California employers streamline US payroll processes and ensure compliance with state regulations.
Disclaimer: This article is provided for general informational purposes and should not be treated as legal or tax advice. Consult a professional before proceeding.
About the author
Shannon Ongaro is a content marketing manager and trained journalist with over a decade of experience producing content that supports franchisees, small businesses, and global enterprises. Over the years, she’s covered topics such as payroll, HR tech, workplace culture, and more. At Deel, Shannon specializes in thought leadership and global payroll content.
