What Payroll Taxes Do Employers Pay in California?

Payroll taxes are a fundamental financial responsibility for employers, funding social programs and services. These obligations extend beyond merely compensating employees, as businesses play a direct role in supporting systems that provide a safety net for the workforce. Understanding these tax requirements is essential for business.

Federal Payroll Taxes

Employers across the United States, including California, must contribute to several federal payroll taxes. The Federal Insurance Contributions Act (FICA) taxes are a significant component, funding Social Security and Medicare programs, shared by both employer and employee.

For Social Security, the tax rate for both the employer and the employee is 6.2% each, totaling 12.4%. This tax applies only up to a certain annual wage base limit, which is $176,100 for 2025. Once an employee’s earnings exceed this amount, no further Social Security tax is collected for that year. Medicare tax has a rate of 1.45% for both the employer and employee, with no wage base limit, meaning all covered wages are subject to this tax. Additionally, an employer must withhold an extra 0.9% Medicare tax from an employee’s wages that exceed $200,000 in a calendar year; however, the employer does not match this additional amount.

The Federal Unemployment Tax Act (FUTA) is another federal payroll tax paid by employers. This tax helps fund unemployment benefits for workers who lose their jobs and supports state employment agencies. Unlike FICA taxes, FUTA is an employer-only contribution, meaning it is not withheld from employee wages.

The standard FUTA tax rate is 6.0% on the first $7,000 of each employee’s wages. Employers typically receive a credit of up to 5.4% against their FUTA tax liability for timely payments into state unemployment systems. This credit can reduce the effective FUTA tax rate to 0.6%. However, California is a credit reduction state for 2025, which means the effective FUTA tax rate for employers in California is 1.5% on the first $7,000 of wages.

California State Payroll Taxes

Employers in California are subject to several state-specific payroll taxes administered by the Employment Development Department (EDD). These taxes fund various state programs, from unemployment benefits to job training initiatives and disability insurance. Each tax has distinct requirements regarding who contributes and how rates are determined.

State Unemployment Insurance (SUI) tax provides temporary benefits to eligible workers who are unemployed through no fault of their own. This tax is an employer-only contribution in California. New employers are typically assigned a rate of 3.4% for their first two to three years. After this initial period, an employer’s SUI tax rate is determined by an experience rating system, which reflects their history of unemployment claims. For 2025, the SUI tax rate schedule for experienced employers ranges from 1.5% to 6.2%, applied to the first $7,000 of each employee’s wages.

The Employment Training Tax (ETT) supports job training for California workers. Like SUI, ETT is an employer-only tax. For 2025, the ETT rate is 0.1% and applies to the first $7,000 of each employee’s wages. This tax is generally collected concurrently with the SUI tax.

State Disability Insurance (SDI) tax funds two programs: Disability Insurance (DI) and Paid Family Leave (PFL). These programs provide partial wage replacement to eligible workers experiencing a loss of wages due to non-work-related illness or injury, pregnancy, or the need to care for a seriously ill family member or bond with a new child. While the employer is responsible for collecting and remitting SDI, it is primarily an employee-paid tax, withheld from their wages. The SDI withholding rate for 2025 is 1.2%. California removed the wage base limit for SDI contributions, meaning all employee wages are now subject to this tax.

Personal Income Tax (PIT) withholding is another state payroll obligation for employers. This tax funds the state’s general operations and public services. Employers are responsible for withholding California PIT from employee wages and remitting these amounts to the state. Employees determine the amount of state income tax to be withheld by completing a California Employee’s Withholding Allowance Certificate, Form DE 4. This state form is distinct from the federal Form W-4.

Reporting and Payment Obligations

Employers must adhere to specific reporting and payment schedules for both federal and state payroll taxes. Compliance involves submitting required forms and remitting tax deposits on time to avoid penalties. The methods and frequencies differ between federal and California agencies.

For federal taxes, employers typically report income tax withholding, Social Security, and Medicare taxes quarterly using Form 941, Employer’s Quarterly Federal Tax Return. These quarterly returns are generally due by April 30, July 31, October 31, and January 31. The Federal Unemployment Tax (FUTA) liability is reported annually on Form 940, Employer’s Annual Federal Unemployment (FUTA) Tax Return, due by January 31 of the year following the tax year. Federal tax deposits are primarily made through the Electronic Federal Tax Payment System (EFTPS), a free service allowing electronic payments directly from a bank account. The frequency of these deposits, whether monthly or semi-weekly, depends on the employer’s total tax liability.

For California state payroll taxes, employers are generally required to file the Quarterly Contribution Return and Report of Wages (Form DE 9) and its continuation (Form DE 9C). These forms consolidate the reporting for SUI, ETT, SDI, and PIT withholding. The quarterly due dates mirror the federal schedule: April 30, July 31, October 31, and January 31. California mandates electronic filing and payment for most employers through the EDD’s e-Services for Business portal. This online platform allows employers to submit tax returns, wage reports, and make payments. While the DE 9 and DE 9C are quarterly, deposits for SDI and PIT withholding may be required more frequently, depending on the accumulated tax amount. Timely filing and payment are important to avoid penalties for late submissions or underpayments.