A Beginner’s Guide To California Payroll Taxes

You've established your small business in California, and things are going so well that you've hired some employees for the first time. Congratulations! Hiring employees introduces new responsibilities you must fulfill as an owner, including handling their payroll taxes and registering with the state.

California's payroll taxes are more complex when compared to other states, which increases the importance of understanding the rules and standards you must abide by. California payroll taxes might initially seem intimidating, but you shouldn't worry. This handy guide to California payroll taxes will get you up to speed in no time.   

What is California payroll tax?

California payroll tax is taken from a portion of an employee's gross earnings for a designated pay period. Like other states, taxes are withheld for Social Security and Medicare, but California adds unique taxes of its own.

If you've hired remote workers for your business, here's a helpful guide to assist you in navigating payroll taxes for remote workers. 

Who is subject to CA payroll taxes?

If you've paid someone $100 or more within a quarter in California, you will be responsible for payroll taxes. If the person you've paid has been hired as an employee, you will have 20 days from their start date to report them to the California New Employee Registry.

Reporting is easy and can be done in a few ways, including:

• Filing the DE 34 form digitally with the California Employment Development Department. 
• Submitting a printed copy of the DE 34 form. 
• Submitting the employee's W-4 form with start date information. 

What are the different types of payroll taxes in California?

What are the payroll taxes in California? There are four types of California payroll taxes that every small business owner should be aware of. 

Unemployment Insurance (UI) Tax

California's UI tax is taken from a percentage of the first $7000 paid to an employee in a calendar year. The current percentages range from 1.5% to 8.2%.

You are also subject to the new employer tax in California, which starts at 3.4% and typically increases over time. 

Employment Training Tax (ETT)

The California ETT funds training for workers in industries critical to the state's economy. First-time employers will be responsible for this tax for the first year, although they may continue paying if their UI tax balance is positive after that.

The ETT rate is one-tenth of 1% of the first $7000 of an employee's taxable income. 

State Disability Insurance (SDI) Tax

As of 2022, the California SDI tax rate is 1.1%, with a taxable wage limit of $145,600 per employee. The California State Legislature sets the SDI rates, which are subject to change each year.

While state disability insurance helps individual employees who cannot work temporarily, funds from this tax also go toward paid family leave benefits.   

California Personal Income Tax (PIT)

California's PIT applies to anyone making money in the state, including non-residents. PIT is taken from your employee's pay, and the taxable amount is uncapped, meaning no maximum amount is defined.

PIT's rate is determined by an employee's withholding amount, which can be found in the Employee's Withholding Allowance Certificate section on a W-4 or DE 4 form. 

Calculating Payroll Taxes in California

Before employers can calculate the various California payroll tax rates, they must first determine taxable income. California's Employment Development Department offers an easy-to-use guide to help employers make that determination. 

• California UI. This tax is taken from a percentage of the first $7000 in taxable income an employee earns in a calendar year, and percentages range from 1.5% to 8.2%.
• California ETT. The tax rate is one-tenth of 1% of the first $7000 of an employee's taxable income in a calendar year. 
• California SDI. The SDI tax rate is 1.1%, with a taxable wage limit of $145,600 per employee. 
• California PIT. An employee's withholding amount determines the PIT rate and can be calculated via the Exact Calculation Method or Wage Bracket Table Method.

Here are some great tips for making payroll more efficient.

How to submit payroll taxes in California

California offers several ways to submit payroll taxes electronically, along with submitting via postal mail. Submission methods are detailed here. 

Regardless of your chosen method, accurate payroll tax calculations and timely submissions can be too much for busy small business owners, which is why 1-800Accountant offers small business payroll services. Let our California payroll experts run payroll for you while you focus on growing your business. 

California Payroll Tax FAQs

Is payroll tax the same as income tax?

California payroll tax and income tax are not the same, and employees must pay both, while businesses are responsible for paying payroll taxes to the state.  

Can I avoid paying payroll taxes?

If you employ people in California, you must pay payroll taxes to the state. Failing to pay can result in penalties and increased scrutiny from the California state government.

How 1-800Accountant’s Payroll Experts Can Help you

Hiring employees for your small business is exciting, but that excitement can become frustrating when faced with difficult and ongoing California employer payroll taxes. That's why so many small business owners use 1-800Accountant, America's leading virtual accounting firm for small businesses, for their California payroll needs. 

Whether it's business tax advisory, small business taxes, or any of our professional accounting services, we have the solution you need at a price that works for you. Schedule a quick consultation – usually 30 minutes or less – to learn how we can help with your employer taxes in California and more.