California State Payroll Taxes: A Comprehensive Guide for Employers

May-15-2025

For a successful and a bit stress-free business, it is important to manage payroll effectively as errors can lead to big losses. In California, employers have to go through and understand a maze of payroll taxes to comply with the rules and regulations of the EDD, also known as the California Employment Development Department. This can help employers to stay safe from heavy penalties.

This blog is a comprehensive guide on 4 important California state payroll taxes that employers have to pay, as well as the ones that have to be withheld from employees.

A Quick Overview of 4 Types of California Payroll Taxes

Payroll taxes in California fund a variety of state programs, including:

Unemployment Insurance (UI) Tax

Employment Training Tax (ETT)

State Disability Insurance (SDI) Tax

Personal Income Tax (PIT)

All of the above taxes are essential for compliance with EDD rules and regulations, as each tax serves a different purpose and importance.

1. Unemployment Insurance (UI) Tax

The unemployment insurance tax is an essential payroll tax that is paid by employers to support a program offering temporary monetary assistance to those workers in California who have lost their jobs but not from their own fault. This tax finances a system that pays benefits to those who qualify while they seek new work. The state administers the program, and employers are required to comply with state regulations regarding payment of these taxes and wage reporting.

Certain employees and occupations are exempt from UI coverage, so employers can contact California's Employment Development Department for more information.

2. Employment Training Tax (ETT)

Employment Training Tax (ETT) is a tax paid by California employers to assist in financing worker training programs. Revenue generated by this tax is utilized to train workers in some industries in order to acquire beneficial skills. The training programs assist firms in remaining competitive, increasing productivity, and maintaining a robust workforce throughout the state. By helping employees grow their skills, ETT also helps employers succeed in today’s job market.

3. State Disability Insurance (SDI) Tax

The State Disability Insurance Tax or SDI Tax, is a California program to give temporary financial help to those employees who cannot work due to a non-job-related illness such as injury, Surgery, or childbirth etc. Most California employees pay into this program automatically by payroll deduction. The money collected goes into a state fund, which is then used to provide benefits. Whereas the majority of workers are included under the general State Plan, some will be covered under approved private plans, and self-employed workers can elect to participate.

It’s essential to meet the eligibility criteria to receive SDI benefits. For example, being under the care of a physician and having some recent work experience. Workers who are temporarily unemployed can receive financial support from the California Employment Development Department (EDD), which also oversees the program's administration.

4. Personal Income Tax (PIT)

California Personal Income Tax (PIT) is a tax that employers withhold from the paychecks of their employees. These funds are deposited into the state General Fund, which funds such things as schools, highways, and healthcare. Unlike some payroll taxes, PIT does not have a cap on how much of an employee's wages can be taxed, PIT is imposed on every taxable wage. Employers must report these wages to the state and make sure the correct amount of tax is withheld. Most wages paid to employees count as PIT wages, but there are some exceptions, like certain farm or household jobs, where PIT may not be withheld unless both the employer and employee agree.

Employer Obligations in California

Employers in California must meet several payroll tax responsibilities:

Employers must obtain a payroll tax account number from the California Employment Development Department before hiring employees.

Employers must withhold SDI and PIT from employee wages and pay UI and ETT taxes.

Employers have to file Form DE-9 quarterly to report wages paid and taxes withheld.

Employers are obligated to retain payroll records for no less than four years for compliance and audit purposes.

Employers are required to make timely payments of taxes to prevent the burden of late charges and penalties. UI and ETT are due quarterly, and SDI and PIT are due monthly.

Penalties for Non-Compliance

Non-compliance with California's payroll tax regulations can have dire results:

Employers can incur penalties and interest for delayed filing or payment.

The EDD audits employers regularly. Misreported data or non-reporting of taxes can result in penalties.

In extreme situations, non-compliance can lead to legal action or closure of the business.

Resources for Employers

To assist with payroll tax compliance, the EDD offers several resources:

An online portal for managing payroll tax accounts.

Several guides and forms for the facilitation of understanding and tax compliance.

No-cost seminars that assist employers in remaining in compliance with state tax regulations.

Conclusion:

In conclusion, maintaining compliance with California's payroll tax system is crucial for businesses. Understanding various taxes and employer obligations can help avoid penalties and provide essential benefits. PayProNext specializes in simplifying payroll and tax compliance for various businesses. This blog provides details on taxes like UI, ETT, SDI, and PIT, as well as insights into the details of California's payroll tax system. Careful planning and direction can help keep payroll operations efficient and compliant.