What Are State Payroll Taxes?
California has four state payroll taxes which are administered by the EDD:
- Unemployment Insurance (UI) and Employment Training Tax (ETT) are employer contributions.
- State Disability Insurance (SDI) and Personal Income Tax (PIT) are withheld from employees’ wages.
Wages are generally subject to all four payroll taxes. However, some types of employment are not subject to payroll taxes and PIT withholding. For more information, refer to Information Sheet: Types of Employment (DE 231TE) (PDF).
The UI program is part of a national program administered by the US Department of Labor under the Social Security Act. The UI program provides temporary payments to people who are unemployed through no fault of their own.
UI is paid by the employer. Tax-rated employers pay a percentage on the first $7,000 in wages paid to each employee in a calendar year. The UI rate schedule and amount of taxable wages are determined annually. New employers pay 3.4 percent (.034) for a period of two to three years. The EDD notifies employers of their new rate each December. The maximum tax is $434 per employee per year (calculated at the highest UI tax rate of 6.2 percent x $7,000.)
Governmental and certain nonprofit employers may elect the reimbursable method of financing UI. They reimburse the UI Fund on a dollar-for-dollar basis for all benefits paid to their former employees.
The ETT provides funds to train employees in targeted industries to make California businesses more competitive. ETT funds promote a healthy labor market, help businesses invest in a skilled and productive workforce, and develop the skills of workers who directly produce or deliver goods and services.
The ETT is an employer-paid tax. Employers subject to ETT pay 0.1 percent (.001) on the first $7,000 in wages paid to each employee in a calendar year. The tax rate is set at 0.1 percent (.001) of UI taxable wages for the employers with positive UI reserve account balances and employers subject to section 977(c) of the California Unemployment Insurance Code. The maximum tax is $7 per employee, per year ($7,000 x .001).
The SDI program provides temporary benefit payments to workers for non-work-related illness, injury, or pregnancy. SDI tax also provides Paid Family Leave (PFL) benefits. PFL is a component of SDI and extends benefits to individuals unable to work because they need to care for a seriously ill family member or bond with a new child.
SDI is a deduction from employees’ wages. Employers withhold a percentage for SDI on the first $122,909 in wages paid to each employee in a calendar year.
The 2020 SDI tax rate is 1.00 percent (.010) of SDI taxable wages per employee, per year. SDI and PFL are set by the California State Legislature and may change yearly. The maximum tax is $1,229.09 per employee, per year ($122,909 x .010).
PIT is a tax on the income of California residents and on income that nonresidents get within California. The EDD administers the reporting, collection, and enforcement of PIT wage withholding. The Franchise Tax Board (FTB) and the EDD administer the California PIT program for the Governor to provide resources needed for California public services, such as schools, public parks, roads, health, and human services.
California PIT is withheld from employees’ pay based on the Employee’s Withholding Allowance Certificate (Form W-4 or DE 4) on file with their employer. There is no taxable wage limit. Refer to the PIT withholding schedule. The withholding rate is based on the employee's Form W-4 or DE 4. There is no maximum tax.
For assistance, contact the Taxpayer Assistance Center at 1-888-745-3886 or visit your local Employment Tax Office.