As a California employer, the sheer amount of taxes you must pay and report can be overwhelming, especially if you're a new employer. On top of federal taxes, you also have the California tax system, one of the country's most complex and progressive.
California has four payroll taxes, which include the following:
- Unemployment Insurance (UI) Tax
- Employment Training Tax (ETT)
- State Disability Insurance (SDI)
- Personal Income Tax (PIT)
Whether you run a small business or work with a large workforce, you'll need to understand these taxes to comply with California tax laws.
But how much are payroll taxes and who's supposed to pay them? We'll answer all those questions and more in this employer's guide.
What is the Employer Portion of Payroll Taxes in California for 2023?
California employers have to pay two of the four state payroll taxes in 2023. They include:
- Unemployment Insurance (UI) Tax: Ranges from 1.5% to 6.2% on the first $7,000 of every employee's annual salary, depending on how much you've paid in unemployment benefits. New employers pay 3.4% for a period of two to three years. The EDD will notify you of your new rate in December.
- Employment Training Tax (ETT): 0.1% of the first $7,000 you pay every employee in a year.
Besides that, you'll also need to pay federal taxes:
- Federal Unemployment Tax (FUTA): 0.9% on the first $7,000 you pay each employee every year.
- FICA tax: 7.65% of an employee's wages for Social Security and Medicare taxes.
If all this sounds complicated, let Hourly handle your payroll taxes for you. The full-service payroll platform will automatically calculate these taxes and file them on your behalf.
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What is the Employee Portion of Payroll Taxes in California?
California employers also need to deduct state taxes from their team members' paychecks. Those taxes include:
- State Disability Insurance (SDI): The taxable rates and wages change every year. The current rate for 2023 is 0.9% on up to $153,164 of wages per employee.
- Personal Income Tax (PIT): The amount to withhold is based on the information your employees give on their DE4 or Form W-4, including the amount of wages paid and the number of withholding allowances the employee has claimed.
Besides that, you'll also need to withhold federal taxes:
- Federal Income Tax: Based on an employee's W-4.
- FICA tax: 7.65% for Social Security and Medicare taxes
And any other local taxes or court-ordered deductions that apply to your team members.
What Percentage Is Payroll Tax in California?
Now that we've covered the four California payroll taxes, here's a table summarizing the percentage you should pay and withhold as an employer:
|Tax||UI Tax||ETT Tax||SDI Tax||PIT Tax|
|Tax Rate||1.5 to 6.2%||0.1%||0.9%||Based on employee's DE 4 or W-4|
|Taxable Wages||First $7,000 per employee, per year||First $7,000 per employee, per year||$153,164 or less per employee, per year||No limit|
|Maximum Tax||$434 per employee, per year||$7 per employee, per year||$1,378.48 per employee, per year||No maximum|
When Are Payroll Taxes Due in California?
In California, payroll taxes are due every quarter to the California Employment Development Department (EDD). The deadlines for each quarter are:
- First Quarter: April 30
- Second Quarter: July 31
- Third Quarter: Oct. 31
- Fourth Quarter: Jan. 31
As a California employer in 2023, you pay the state unemployment tax and employment training tax to the state tax agency.
How Do You Submit Payroll Taxes in California?
There are four main ways you can submit payroll taxes:
- Enroll in e-Services
- Express Pay
- Other e-file and payment options
- File by mail
Let's explore each method in detail:
Enroll in e-Services
If you want a secure and quick way to report and pay your employer's portion of tax contributions, e-Services is the way to go.
With e-Services, you can:
- Pay your taxes
- File and print reports and returns
- Register, close, or re-open your payroll tax account
- Report new workers or independent contractors
You must register for an employer tax account at e-Services within 15 days of paying more than $100 to an employee in a calendar quarter.
The EDD highlights the steps for enrolling in e-Services on its website. After opening your account, you should issue DE 4 forms to your employees, report new employees to the EDD via DE 34, and file the required reports.
This is a much easier way to submit your payroll taxes, and you don't need to enroll anywhere to use it.
You only need to enter your tax account number and payment information, then submit your tax deposit or account payment. You can do so here.
Other E-File and Payment Options
Apart from e-Services and Express Pay, you can use the options below to pay your payroll taxes:
- Federal/State Employment Taxes (FSET)—Bulk Transmissions (open to payroll service providers, transmitters, and software developers who act as reporting agents. It's also available to employers who want to design their own software for transmitting their tax and wage information).
- Electronic Funds Transfer (EFT)
- Credit Card and Cash (PayNearMe) Payments
File by Mail
The only reason to file your tax returns by mail is if you have an approved e-file and e-pay mandate waiver from the EDD. The state department will penalize you if you submit deposits and paper forms without this waiver.
To ask for a waiver, download and fill out the E-file and E-pay Mandate Waiver Request (DE 1245W) (PDF). After that, fax it to 1-916-255-1181 or mail it to:
Employment Development Department
Document and Information Management Center
PO Box 989779
West Sacramento, CA 95798-9779
You can visit an Employment Tax Office or contact the Taxpayer Assistance Center at 1-888-745-3886 if you can't download and print the waiver request form.
Deep Dive into California Payroll Taxes
Want to learn a little more about each state tax in California? Here's all the info you need to become a tax pro.
Unemployment Insurance Tax
The State Unemployment Insurance tax gives temporary payments to people who aren't working due to situations beyond their control, like people who lose their jobs due to company closure (or downsizing) and are looking for a new job.
You should pay UI taxes once you've paid employees more than $100 in a calendar quarter.
Most employers pay a percentage on the first $7,000 they pay every employee each calendar year.
The EDD determines the UI rate annually. New employers pay 3.4% for a period of two to three years. After that, the EDD notifies you of your new rate each December.
The EDD can increase the UI rate to a maximum of 6.2% or decrease it to a minimum of 1.5% based on the balance in the UI Fund and your experience rating.
Employment Training Tax
The second tax you pay as a California employer is the Employment Training Tax.
It provides the cash required to train Californians in specific industries. That way, those businesses can get a skilled and productive workforce.
Your contribution is 0.1% for the first $7,000 you pay each worker in a calendar year. That means the maximum ETT tax you can pay is $7 per employee per year (0.1% x $7,000).
You'll pay the ETT tax annually if you have a positive (zero or greater) UI reserve account balance. If you have a negative UI reserve balance, you won't pay the ETT.
State Disability Insurance Tax
The SDI provides support payments to people who can't work due to a non-work-related injury, illness, or pregnancy. You don't pay this tax as an employer, but the burden falls on you to deduct it from employees' paychecks.
The SDI tax funds Disability Insurance (DI) and offers Paid Family Leave (PFL) benefits to eligible California employees, such as those taking time off to care for family members or new parents looking to bond with their newborn child.
The SDI taxable rates and wages may change every year. For example, the current rate for 2023 is 0.9% for employees making $153,164 or less annually. The maximum you can withhold per employee is $1,378.48 (0.9% x $153,164).
For 2022, it was 1.1% for employees making $145,600 or less—the maximum you could withhold was $1,601.60 per employee. Visit the EDD website to stay updated on these changes every year.
California Personal Income Tax
Personal Income Tax (PIT) is deducted from California residents' income and income that nonresidents generate from California. These taxes support public services such as health services, schools, roads, human services, and public parks.
Just like the SDI tax, you should deduct the PIT taxes from your employees' pay stubs. The amount of California state tax you withhold is based on the information your employees give on their Employee's Withholding Allowance Certificates (DE 4) or their Form W-4s. This includes the amount of wages paid and the number of withholding allowances the employee has claimed.
As a California employer, you have two ways to calculate the amount to withhold for PIT from employees' wages:
- Method A—Wage Bracket Table Method (PDF): It's limited to salaries or wages below $1 million and provides an easy way to choose the appropriate withholding amount based on the number of withholding allowances, filing status, and payroll period.
- Method B—Exact Calculation Method (PDF): It gives the exact amount of tax to withhold by filling in the payroll period, filing status, standard deduction, number of withholding allowances, and exemption allowance credit amounts.
Feel More Confident with Payroll Taxes in California
The tax system in California is one of the most progressive in the country, meaning the more money your workers earn, the more taxes they pay.
That also means the more you scale your business and hire more employees, the higher your employer tax contributions and the amount you must withhold from employees' wages. But don't let that frighten you. You'll be fine once you get the hang of it.
Also, the good thing is that your employees will have access to the benefits these taxes offer in the event of a rainy day.