How Employee Taxes Work in California
Gain a clear understanding of your California take-home pay by learning how state and federal employee payroll taxes are calculated and reported.
When you work as an employee in California, both federal and state governments require that a portion of your earnings be set aside for taxes with every paycheck. These deductions fund public services and social insurance programs. The amount deducted is based on your total earnings, tax rates set by law, and information you provide to your employer. This process means your final take-home amount, or net pay, is less than your total earnings, known as gross pay.
Determining Your Tax Withholding
When you start a new job, you must provide your employer with information to calculate your tax obligations. The document for state taxes is California’s Employee’s Withholding Allowance Certificate, Form DE 4. This form determines the amount of California Personal Income Tax (PIT) to withhold from your wages.
On the DE 4, you will enter your filing status and calculate the number of allowances you can claim. Claiming more allowances results in less tax being withheld from each paycheck, while claiming fewer allowances leads to more tax being withheld. If you do not submit a DE 4, your employer is required to use a “Single with Zero” allowance status, which results in the highest withholding.
You will also complete the federal Form W-4 for federal income tax withholding. You can update your withholding anytime by submitting new forms to your employer, which is recommended after life events like marriage or a change in income.
Taxes Withheld From Employee Pay
Your employer deducts several mandated taxes from your gross pay each period, with the amounts varying based on your earnings and tax form information.
California Personal Income Tax (PIT)
The largest state tax deduction is the California Personal Income Tax (PIT), which funds public services like education and transportation. California uses a progressive tax system with nine tax brackets for 2025, with rates ranging from 1% to 12.3%. The amount of PIT withheld is an approximation of your annual tax liability, and the final amount you owe is determined when you file your state income tax return.
State Disability Insurance (SDI)
Another mandatory deduction is for State Disability Insurance (SDI). This state-managed program provides partial wage replacement for non-work-related illness, injury, or pregnancy. The SDI program also funds Paid Family Leave (PFL) for those who need to care for a sick family member or bond with a new child. The SDI tax is paid entirely by the employee, and for 2025, the withholding rate is 1.2% of all wages with no annual income ceiling.
Federal Insurance Contributions Act (FICA)
Every California employee has deductions for the Federal Insurance Contributions Act (FICA), which consists of two separate taxes that fund federal retirement, disability, and medical benefits. Your employer withholds these taxes and pays a matching amount.
The Social Security tax rate for employees is 6.2%. This tax applies only up to an annual income limit, which is $176,100 for 2025. Once your earnings exceed this amount for the year, Social Security tax is no longer withheld.
The Medicare tax rate is 1.45% and applies to all of your earnings without a wage limit. High-income earners are also subject to an Additional Medicare Tax of 0.9% on earnings that exceed certain thresholds, which is paid only by the employee.
Employer Paid Payroll Taxes
In addition to taxes withheld from employee pay, employers in California are responsible for paying their own set of payroll taxes to fund unemployment programs.
The Federal Unemployment Tax Act (FUTA) helps fund state workforce agencies. The standard FUTA tax rate is 6.0% on the first $7,000 of wages per employee, but employers can receive a credit that effectively lowers the rate to 0.6% if they pay state unemployment taxes on time.
At the state level, employers pay State Unemployment Insurance (SUI) to fund benefits for workers who have lost their jobs. The SUI taxable wage limit for 2025 is $7,000 per employee, with rates for established businesses ranging from 1.5% to 6.2%. Employers may also pay the Employment Training Tax (ETT), which is 0.1% on the same $7,000 wage base, to fund employee training programs.
Reading Your California Pay Stub
Your pay stub, or pay statement, provides a detailed breakdown of your compensation for a pay period. It will show your “Gross Pay,” which is your total earnings before any deductions are taken out. The pay stub then lists all deductions, which are grouped into categories like taxes and other withholdings.
The tax section will have distinct line items for federal and state taxes. You will see labels such as “FIT” (Federal Income Tax), “FICA” (Social Security), and “MEDI” (Medicare). For state taxes, look for “SIT:CA” (California State Income Tax) and “SDI:CA” (California State Disability Insurance).
After all taxes and other deductions are subtracted from your gross pay, the final amount is your “Net Pay,” which is the money you receive.