Payroll tax in California: What employers need to know [Updated 2024]

As the old saying goes, nothing is certain in this world except two things… and one of them is taxes. Unsurprisingly, when it comes to this rite of passage, business owners don’t get off scot-free—especially in California. On top of US FICA taxes, like Medicare tax and Social Security tax, companies are also responsible for state payroll taxes. However, these regulations vary across the states, so it’s crucial to understand the tax laws everywhere your employees live.

California has a progressive tax system—meaning its tax structure is especially complex. Simply put, the more your employees earn, the more taxes they will pay. Similarly, if business is booming and your workforce is brimming with new hires, your employer tax contributions will be higher, along with the amount you need to withhold from employees’ paychecks. 

Whether you’re running a small business or a global corporation, if you have employees in the state of California, it’s crucial to master the different types of taxes, each of their rates, and who owes what when. Let’s dive in.

The 4 California payroll taxes

In California, the Employment Development Department (EDD) administers payroll taxes at the state level. California employers who have paid more than $100 to one or more employees within a calendar quarter are required to pay taxes. The payroll tax obligation begins within 20 days of an employee’s start date, during which California employers must also report information about their hire to the California New Employee Registry.

California has four types of payroll taxes. We’ll cover what they are, who is responsible for paying them, and the maximum amount you could be on the hook for. 

Unemployment insurance tax

California’s state unemployment insurance (UI) is part of a national US Department of Labor program under the Social Security Act. It provides temporary payments to people who are unemployed due to a situation out of their control, like layoffs. The EDD determines the UI tax rates and taxable wages annually. New employers pay 3.4% for two to three years, and then the EDD notifies them of their new rate each calendar year in December. 

Under the Federal Unemployment Tax Act (FUTA), California employers typically must also pay a federal unemployment tax in addition to California’s state tax.

Employment training tax

The employee training tax (ETT) provides funds for training employees in specific industries. Paid by employers, the main goal of ETT funds is to make businesses more competitive and foster a healthy labor market in California by developing workers’ skills, and therefore ensuring businesses invest in a productive workforce.

State disability insurance tax

The state disability insurance (SDI) program provides temporary payments to workers who are experiencing non-work-related injuries, illnesses, or pregnancy. Withheld from employees’ wages, SDI tax also supplies Paid Family Leave (PFL) benefits to those who can’t work while they:

• Take care of a sick family member
• Participate in a qualifying event due to a family member’s military deployment
• Bond with their new child

As of 2024, the SDI withholding rate is 1.1%. A new provision removed taxable wage limits and maximum withholdings for these contributions.

Personal income tax

Personal income tax (PIT) provides resources for public services in California, like schools, roads, parks, and healthcare. Employers are required to withhold this state income tax from employees’ pay. The EDD manages the reporting, collection, and enforcement of PIT withholding, and income tax rates are based on employees’ tax W-4 and DE 4 forms.

There are two methods to determine the amount employers should withhold for California personal income tax. 

• Method A is the wage bracket table method, which is limited to salaries below $1 million. With this method, you can identify the withholding amount based on the payroll period, filing status, and number of withholding allowances. The standard deduction and exemption allowance credit are already included in the wage bracket tables. This is the easier of the two methods.
• Method B is the exact calculation method. This method requires more computations—you must enter the payroll period, filing status, number of withholding allowances, standard deduction, and exemption allowance credit.

Navigating payroll tax laws can be overwhelming, especially in California, with its complex progressive payroll system and four types of payroll taxes. But Rippling’s payroll software makes it easy to stay compliant. Rippling automatically calculates your taxes and submits your tax forms and payments on your behalf—monitoring the tax laws at the federal and California state and local levels to ensure total compliance. And to take it a step further, Rippling’s PEO can register and maintain your state tax accounts for you, automating even more of the payroll tax process.

Payroll tax due dates in California

California employers owe unemployment insurance and employment training tax to the EDD each quarter. The due dates are the final day of the following month from which the quarter ends—or the next business day if it falls on a weekend or holiday—as follows:

• First quarter (January-March): Due April 30
• Second quarter (April-June): Due July 31
• Third quarter (July-September): Due October 31
• Fourth quarter (October-December): Due January 31

Employers may need to deposit the withholdings for state disability insurance and personal income tax more often than quarterly, depending on their state income tax withholding amount and federal income tax deposit schedule. Late payments can be costly, carrying a 15% penalty plus interest.

How to submit payroll taxes in California

We’ve covered the types of taxes and when to pay them—but how do California employers actually file taxes? They have a few options. 

Enroll in e-Services 

For employers who are looking for a quick, simple, and secure way to manage payroll taxes, the EDD’s e-Services for Business option ticks those boxes. With e-Services, some of the things you can do are:

• Make payments
• File, adjust, and print returns
• Register, close, or reopen an account
• Report new employees or independent contractors

The EDD website has instructions for enrolling in e-Services and managing your payroll tax account, whether you’re an employer or a third-party representative.

Express pay

Express pay is an even easier way to submit payroll taxes—no enrollment required. Just enter your tax account number and payment information on the CA.gov website.

File by mail

As of January 2018, California state law requires employers to submit payroll taxes to the EDD electronically. However, California employers can submit taxes by mail—without a penalty—if they acquire a special waiver from the EDD beforehand. For permission to file by mail, they can download and fill out the e-file and e-pay mandate waiver (DE1245W) and then fax it to +1 (916) 255-1181 or mail it to this address:

Employment Development Department

Document and Information Management Center

PO Box 989779

West Sacramento, CA 95798-9779

Other payment options

In addition to e-Services, express pay, and mail, these are some other options available. 

• Federal/State Employment Taxes (FSET)—Bulk Transmissions. This program provides a standardized method for making tax payments and is open to software developers and payroll providers.
• Electronic Funds Transfer (EFT). You can make EFT payments by Automated Clearing House (ACH) debit for free, or ACH credit, which may have a fee. If you choose debit, you need to authorize the state of California to electronically transfer funds from your bank account. To use credit, your bank account must transfer funds to the state.
• Credit Card and Cash (PayNearMe). You can make a credit card payment by phone or online. For cash payments, you can use PayNearMe at participating locations. However, PayNearMe charges a $5.99 transaction fee and only accepts up to $1,000 per transaction, $2,500 within a 24-hour period, and $10,000 per month.

Rippling’s full-service payroll software

Looking for an even easier payment option? Rippling’s payroll software is so powerful, it practically runs itself. Rippling automates all your compliance work and files your federal and California state and local payroll taxes at the right time, with the right agencies.

FAQs about California payroll taxes

Can your tax returns be audited in California?

Yes, audits ensure businesses pay the correct amount of taxes—and businesses operating in California are subject to payroll tax audits by the EDD. 

Are nonprofit organizations subject to payroll taxes in California?

Yes, most nonprofits are responsible for all four of California’s payroll taxes. However, nonprofits that are exempt under Section 501(c)(3) of the Internal Revenue Code (IRC) can choose how they want to finance their UI costs. They can either pay the same UI taxes as commercial businesses or reimburse the EDD for the full cost of the UI benefits paid to their former employees. 

Are there local tax laws in California?

Apart from payroll taxes, California has sales and use tax rates that vary by jurisdiction (in addition to a 7.25% statewide rate). For instance, San Francisco imposes a 8.63% sales tax and Los Angeles has a rate of 9.5%. The California Department of Tax and Fee Administration (CDTFA) posts a table of all rates.

Disclaimer: Rippling and its affiliates do not provide tax, accounting, or legal advice. This material has been prepared for informational purposes only, and is not intended to provide or be relied on for, tax, accounting, or legal advice. You should consult your own tax, accounting, and legal advisors before engaging in any related activities or transactions.