What Are Payroll Taxes in California?

Payroll taxes are funds employers collect from employee wages or pay directly to government agencies. These contributions fund public programs like Social Security, Medicare, unemployment, and disability insurance. This article explores California’s payroll taxes.

Overview of Payroll Taxes in California

California payroll taxes include both federal and state components. Federal taxes like those under the Federal Insurance Contributions Act (FICA) for Social Security and Medicare, and the Federal Unemployment Tax Act (FUTA) apply nationwide. California also imposes its own state-level payroll taxes.

A key distinction is between taxes withheld from employee paychecks and those paid directly by the employer. Employee contributions are deductions from gross wages, reducing take-home pay. Employer contributions are additional business costs, separate from employee wages. These taxes fund specific state programs.

California Employee Payroll Taxes

California employees contribute to two state payroll taxes: Personal Income Tax (PIT) withholding and State Disability Insurance (SDI). PIT withholding is a mandatory deduction from wages, reflecting the state’s progressive income tax system, where a higher tax rate may apply as income increases. The amount withheld depends on wages, withholding allowances claimed on Form DE 4 or federal Form W-4, and the payroll period.

SDI is another mandatory deduction from employee wages. This program provides partial wage replacement benefits to eligible workers who lose wages due to non-work-related illness, injury, or pregnancy. For 2025, the SDI withholding rate is 1.2 percent, up from 1.1 percent in 2024. As of January 1, 2024, there is no longer a taxable wage limit for SDI contributions; all taxable wages are subject to this deduction.

California Employer Payroll Taxes

Employers in California pay specific payroll taxes directly, not withheld from employee wages. These include State Unemployment Insurance (SUI) and Employment Training Tax (ETT). SUI funds benefits for eligible workers unemployed through no fault of their own. The SUI tax rate for employers is determined by an experience rating system, factoring in their unemployment claims history.

New employers typically start with a SUI tax rate of 3.4 percent for their first two to three years. The taxable wage base for SUI remains $7,000 per employee per calendar year for 2024 and 2025, meaning employers pay SUI only on the first $7,000 earned annually. Employers also pay the Employment Training Tax (ETT), which supports job training programs. For 2025, the ETT rate is 0.1 percent, applied to the same $7,000 taxable wage limit per employee as SUI.

Withholding, Reporting, and Payment Requirements

Employers in California have specific obligations for handling payroll taxes. They must correctly withhold California Personal Income Tax and State Disability Insurance from employee wages. The Employment Development Department (EDD) mandates electronic submission of employment tax returns, wage reports, and payroll tax deposits for all employers.

Payroll tax deposit frequency depends on factors like the amount of California Personal Income Tax withheld and the employer’s federal deposit schedule. Employers accumulating $350 or more in PIT monthly must deposit by the 15th of the following month. Otherwise, deposits are due quarterly, by the last day of the month following the quarter’s end.

For reporting, employers must file the Quarterly Contribution Return (Form DE 9) and the Quarterly Wage and Withholding Report (Form DE 9C) with the EDD. These forms are due by the last day of the month following each calendar quarter. Payments are made via electronic funds transfer (EFT) using the EDD’s e-Services for Business online platform. Maintaining accurate payroll records is important, as these records support reported figures.