Table of Contents

How Much is the Payroll Tax in California? A Deep Dive for Employers

The Golden State, with its vibrant economy and complex regulations, requires employers to navigate a multifaceted payroll tax landscape. Understanding the specific rates and requirements is crucial for maintaining compliance and avoiding costly penalties. In short, the answer to “How much is the payroll tax in California?” is nuanced. It isn’t a single, flat percentage. It’s a combination of several state-level taxes and deductions that, when added to the federal payroll taxes, constitute the total payroll tax burden. Key components include Unemployment Insurance (UI), Employment Training Tax (ETT), State Disability Insurance (SDI), and Personal Income Tax (PIT) withholding. Each has its own rate and is subject to change annually. Furthermore, the UI rate for each employer is experience-rated, meaning it varies based on their history of unemployment claims.

Understanding California Payroll Tax Components

Navigating the world of California payroll taxes can feel like deciphering ancient hieroglyphics. Let’s break down the most significant components, so you can grasp the essentials.

Unemployment Insurance (UI)

Unemployment Insurance (UI) is a crucial part of California’s social safety net. It provides temporary financial assistance to workers who lose their jobs through no fault of their own. The UI tax is employer-funded, meaning employees don’t contribute directly. The rate, however, is not static; it’s experience-rated.

Experience Rating: This means your UI rate depends on your company’s history of unemployment claims. If your former employees frequently file for UI benefits, your rate will be higher. Conversely, if you have a stable workforce with minimal layoffs, your rate will be lower. The UI rate ranges annually, usually from 0.0% to 6.2%.
Taxable Wage Base: This is the maximum amount of each employee’s wages that is subject to UI tax. For 2024, the taxable wage base is $7,000 per employee. This means employers pay UI tax only on the first $7,000 of each employee’s earnings during the calendar year.

Employment Training Tax (ETT)

The Employment Training Tax (ETT) funds programs designed to help California businesses train their employees. Unlike UI, the ETT rate is typically a fixed percentage applied to a similar taxable wage base as UI.

Fixed Rate: The ETT rate is generally quite small, currently set at 0.1% for 2024. While seemingly insignificant, this tax contributes to the state’s workforce development efforts.
Taxable Wage Base: Like UI, the ETT also applies to the first $7,000 of each employee’s wages.

State Disability Insurance (SDI)

State Disability Insurance (SDI) provides benefits to eligible workers who are unable to work due to illness or injury that is not work-related. This includes disability benefits and Paid Family Leave (PFL).

Employee-Funded: SDI is primarily funded through employee payroll deductions. Employers are responsible for withholding these contributions and remitting them to the state.
SDI Rate and Wage Base: The SDI rate changes annually. For 2024, the SDI rate is 1.1% of taxable wages, up to a wage base of $153,164 per employee. This means the maximum SDI deduction for an employee in 2024 is $1,684.80.

California Personal Income Tax (PIT) Withholding

While not technically a payroll tax paid by the employer, California Personal Income Tax (PIT) withholding is a crucial part of payroll administration. Employers are required to withhold state income taxes from their employees’ wages and remit them to the California Franchise Tax Board (FTB).

Withholding Tables: The amount to withhold depends on the employee’s W-4 form, which indicates their filing status and withholding allowances. The FTB provides withholding tables to help employers calculate the correct amount.
Compliance is Key: Accurate and timely PIT withholding is critical. Failure to comply can result in penalties and interest charges.

Other Considerations

Beyond these main components, several other factors can influence your payroll tax obligations.

Local Taxes: Some cities and counties in California may impose local payroll taxes or business license fees that impact your overall payroll costs. San Francisco, for instance, has a payroll expense tax for certain businesses.
Federal Payroll Taxes: Don’t forget about federal payroll taxes! These include Social Security, Medicare, and federal income tax withholding. These are separate from California’s state taxes.
Independent Contractors: Be careful not to misclassify employees as independent contractors. Doing so can lead to significant tax liabilities and penalties. California has strict rules for determining worker classification.

Staying Compliant: A Never-Ending Task

California’s payroll tax laws are subject to change. Staying compliant requires continuous monitoring and adaptation.

EDD Resources: The California Employment Development Department (EDD) is your go-to resource for information on UI, ETT, and SDI. Their website provides publications, forms, and online services.
FTB Resources: The Franchise Tax Board (FTB) handles California’s personal income tax. Consult their website for withholding tables, publications, and guidance.
Professional Assistance: Consider working with a payroll service provider or tax professional to ensure accuracy and compliance. This can be especially beneficial for small businesses that lack in-house expertise.

Frequently Asked Questions (FAQs)

Here are some frequently asked questions to further clarify California payroll taxes.

1. What is the current UI tax rate range in California? The UI tax rate in California varies from 0.0% to 6.2%, depending on an employer’s experience rating. New employers typically start at a slightly higher rate than the minimum.

2. What is the taxable wage base for UI and ETT in California? The taxable wage base for both Unemployment Insurance (UI) and Employment Training Tax (ETT) in California is $7,000 per employee per year.

3. What is the SDI rate in California for 2024? The SDI rate for 2024 is 1.1% of taxable wages, up to a wage base of $153,164 per employee.

4. Who pays the SDI tax in California? The employee pays the State Disability Insurance (SDI) tax in California through payroll deductions.

5. What is the ETT rate in California? The Employment Training Tax (ETT) rate is currently 0.1% of the first $7,000 in wages per employee.

6. How often do I need to file payroll taxes in California? The frequency of your payroll tax filings depends on the amount of taxes you withhold. Some employers file monthly, while others file quarterly. The EDD will notify you of your filing schedule.

7. What happens if I don’t pay my payroll taxes on time in California? Late payment of payroll taxes in California can result in penalties and interest charges. The penalty is typically a percentage of the unpaid tax.

8. Where can I find the withholding tables for California Personal Income Tax (PIT)? The withholding tables for California Personal Income Tax (PIT) are available on the California Franchise Tax Board (FTB) website.

9. Are there any local payroll taxes in California? Yes, some cities and counties in California have local payroll taxes or business license fees that are based on payroll. San Francisco’s payroll expense tax is one example.

10. How does California define an employee versus an independent contractor? California has a strict test for determining worker classification, often referred to as the “ABC test.” This test focuses on the level of control the employer has over the worker.

11. What is Paid Family Leave (PFL) in California, and how is it funded? Paid Family Leave (PFL) is a component of SDI that provides benefits to eligible workers who take time off work to care for a seriously ill family member or bond with a new child. It is funded through employee payroll deductions, the same as SDI.

12. Where can I get help with California payroll taxes? You can get help with California payroll taxes from the California Employment Development Department (EDD), the California Franchise Tax Board (FTB), payroll service providers, and tax professionals. Consulting with a qualified professional is highly recommended.