Payroll Taxes FAQs

Find answers to frequently asked questions about California payroll taxes.

The wages of employees who typically perform services in another state for an employer located outside of California will not be subject to Unemployment Insurance (UI) tax, Employment Training Tax (ETT), and Disability Insurance (DI) withholdings if those employees are temporarily performing services within California due to the COVID-19 pandemic. If a worker remains in California performing services after state or federal public health officials have ended stay-at-home orders and the worker could have resumed working at their normal work location outside California, the worker and the employer will be considered subject to California employment tax laws.

If the employee continues to perform services in California after the COVID-19 pandemic has ended, those services will become subject to UI tax, ETT, and DI contributions. For more information, refer to Information Sheet: Multistate Employment (DE 231D) (PDF).

There are two types of employers. Those who:

Employers who operate a business can be a person or a legal entity and include:

  • Sole Proprietors
  • Partnerships
  • Corporations
  • Nonprofit and Charitable Organizations
  • Limited Liability Companies
  • Limited Liability Partnerships
  • Public Entities (including state and federal agencies)
  • Schools
  • Associations and Trusts
  • Estates
  • Joint Ventures
  • Indian Tribes

Household Employers hire domestic services (household workers) for:

  • Private Households
  • Local College Clubs
  • Local Chapters of College Fraternities or Sororities

Generally, a business becomes subject to state payroll taxes when it pays more than $100 in wages in a calendar quarter to one or more employees. Wages consist of compensation for services performed, including:

  • Cash payments.
  • Commissions.
  • Bonuses.
  • Reasonable cash value of noncash payments (like meals and lodging) for services.

An employer who has met this requirement must register with us within 15 days of becoming an employer.

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If you pay wages to people who work in or around your home, you may be considered a household employer. A household employee may perform services on a temporary or part-time basis.

A household employer must report when they hire domestic services and pay cash wages of $750 or more in a calendar quarter.

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Wages can be paid by cash or check for an employee’s personal services, or the reasonable cash value of noncash payments such as meals and lodging. The method of payment, whether by private agreement, consent, or mandate, does not change payroll tax requirements for wages paid to employees.

Payments are considered wages even if the employee is a:

  • Casual worker
  • Day or contract laborer
  • Part-time or temporary worker
  • Paid by the day, hour, or any other method or measurement

Supplemental payments, including bonuses, overtime pay, sales awards, commissions, and vacation pay are also considered wages.

Important: If you pay your employee’s share of Social Security, Medicare, or State Disability Insurance (SDI) without deducting the amounts from their wages, these payments may also be wages. Learn more with our Information Sheet: Social Security/Medicare/SDI Taxes Paid by an Employer (DE 231Q) (PDF).

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As defined in the California Unemployment Insurance Code, an employee includes:

  • Any officer of a corporation.
  • Any worker who is an employee under the usual common law rules.
  • Any worker whose services are specifically covered by law.

An employee may perform services on a part-time or temporary basis.

Employment can also include the following services:

  • Day labor
  • Part-time help
  • Casual labor
  • Temporary help
  • Probationary
  • Outside labor

For More Information

Refer to the Information Sheet: Employment (DE 231) (PDF).

An employer-employee relationship exists when:

  • A business hires a worker to perform services.
  • The employer has the right to exercise control over how the worker performs services.
  • The right to discharge a worker at will and without cause is strong evidence of the right of direction and control.

The right of control, whether or not it is used, is the most important factor in determining the relationship.

The following factors should also be taken into consideration:

  • If the person performing the services is engaged in a separately established occupation or business.
  • The kind of occupation, with reference to whether, in the locality, the work is usually done under the direction of a principal without supervision.
  • The skill required to perform the services and accomplishing the desired result.
  • If the principal or person providing the services supplies the tools, equipment, and place of work for the person doing the work.
  • The length of time the services are performed to determine if the performance is an isolated or continuous event.
  • The method of payment (time, a piece rate, or by the job.)
  • If the work is part of the regular business of the principal.
  • If the parties believe they are creating the relationship of employer and employee.
  • The extent of actual control used by the principal over how the services are performed.
  • If the principal is engaged in a business enterprise or if the services being performed are for the benefit or convenience of the principal as an individual.
  • If the worker can make business decisions that would enable them to earn a profit or receive a financial loss. Investment of the worker’s time is not sufficient to show a risk of loss.

A written contract which outlines the relationship of principal and independent contractor is not controlling if the practice of the parties shows that the principal retains the right of control under the common law rules.

Being an employee is typically when a worker is hired by a business and the worker does not have their own business or professional service relative to the employer.

If you are unsure if your workers are employees or independent contractors, refer to the following:

The California factors and the federal factors to determine if a worker is an employee or an independent contractor differ in some cases. Refer to IRS Tax Topic 762 - Independent Contractor vs. Employee.

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We offer Payroll Tax Seminars to assist employers with complying with California’s payroll tax laws.

All family employees’ wages are reportable as California Personal Income Tax (PIT) wages and subject to PIT withholding. However, the following family employees’ wages are not subject to Unemployment Insurance (UI), Employment Training Tax (ETT), and State Disability Insurance (SDI):

  • A child under 18 employed by parent or partnership consisting only of parents. Children can include adopted children but does not include stepchildren or foster children.
  • A person employed by a spouse or registered domestic partner.
  • A parent employed by a son or daughter. Parents can include adoptive parents but does not include stepparents or foster parents.

We offer free seminars to help employers comply with California’s payroll tax laws. Search Payroll Tax Seminars to find available classroom seminars or online courses.

Our payroll tax rules may vary from the IRS about family employment.

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Some types of employment (for example, agricultural and household employment) are not subject to PIT withholding, though the wages may be reportable as PIT wages. Refer to the Information Sheet: Types of Employment (DE 231TE) (PDF) for more information.

Excluded family employees can apply for SDI elective coverage on the Application for Elective Coverage by Disability Insurance (DE 1378J) (PDF). For information about elective coverage, refer to Information Sheet: Specialized Coverage (DE 231SC) (PDF).

Most nonprofit organizations are subject to Unemployment Insurance (UI), Employment Training Tax (ETT), State Disability Insurance (SDI), and Personal Income Tax (PIT) withholding.

However, nonprofit organizations that have an exemption under Section 501(c)(3) of the Internal Revenue Code (IRC) have a choice in the method of financing their UI costs.

A nonprofit entity can either:

To choose the reimbursable method, a nonprofit employer must file a Selection of Financing Method by a Nonprofit Organization (DE 1SNP) (PDF) as well as a Registration Form for Nonprofit Employers (DE 1NP) (PDF) when registering. If the DE 1SNP is filed at a later date, it will start the first day of the quarter in which it is filed.

For religious, charitable, educational, and other nonprofit organizations

Special Exclusions

Certain types of employees who work for religious, charitable, educational, and other nonprofit organizations described in Section 501(c)(3) IRC are excluded from UI, ETT, and SDI. Except for certain religious workers, wages received by these employees are subject to PIT withholding and PIT wage reporting. These can include:

  • Employees of a church, convention, association of churches, or an organization operated primarily for religious purposes.
  • Duly ordained, commissioned, or licensed ministers in the exercise of their ministry and members of religious orders. (Also excluded from PIT withholding.)
  • People receiving work-relief or work-training in a program financed by any government agency.
  • Inmates of a custodial or penal institution.

For Public Entities

Public entities (the State of California, counties, cities, districts, public agencies and authorities, school districts, and community colleges) can choose the experience rating or reimbursable method of financing UI and must withhold PIT. Public entities are not subject to SDI but can choose it under certain circumstances.

Special Exclusions

Some employees of public entities are excluded from UI and SDI coverage. These include:

  • Elected officials (not considered employees).
  • Members of legislative bodies or the judiciary.
  • Members of the State National Guard or Air National Guard, except those who provide services as regular state employees.

Under certain circumstances, nonprofit and public entities can choose UI or SDI coverage for employees whose services are not in subject employment.

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Attend a Seminar

We offer free seminars to help employers comply with California’s payroll tax laws. Search Payroll Tax Seminars to find available classroom seminars or online courses.

Yes, you can file tax returns and wage reports electronically.

California state law requires all employers to electronically submit employment tax returns, wage reports, and payroll tax deposits to us. Find more on the requirements for the E-file and E-pay Mandate for Employers.

To file tax returns and submit wage reports electronically, use one of the following online methods:

Yes, all employers must pay their payroll taxes electronically by using one of the following methods:

California state law requires all employers to electronically submit employment tax returns, wage reports, and payroll tax deposits to us. Find more on the requirements for the E-file and E-pay Mandate for Employers.

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Yes. Access your account through e-Services for Business to change an address or request to close an existing employer payroll tax account.

You can report new employee information online or by mail using the following steps:

  • Log in to e-Services for Business and file the Report of New Employee(s) (DE 34) online.
  • Mail a paper Report of New Employee(s) (DE 34).
  • Mail a copy of the employee’s W-4 form with the employee’s start-of-work date, your California employer payroll tax account number, and your federal employer identification number indicated on the W-4.

If you have lost your payroll tax refund, or if your payroll tax refund check is older than a year, contact the Taxpayer Assistance Center at 1-888-745-3886.

Refunds are mailed to the Address of Record. You can verify/update your Address of Record and view refund information in e-Services for Business using the View My Refunds link or by contacting the Taxpayer Assistance Center at 1-888-745-3886 to check the status of your payroll tax refund.

Yes. If you are a corporate officer and you (or you and your spouse) are the sole stockholders of your corporation, you are subject to State Disability Insurance (SDI). However, you may be able to exclude yourself from SDI by sending a completed Sole Shareholder/Corporate Officer Exclusion Statement (DE 459) (PDF) to us. The exemption starts the first day of the quarter in which it is filed.

When class action litigation involves wage and hour issues and the settlement requires back pay to be made by a third-party administrator, the employer (the defendant) is responsible for reporting subject wages and paying Unemployment Insurance, Employment Training Tax, and State Disability Insurance. The third-party administrator who controls the payment of the back pay is responsible for reporting Personal Income Tax (PIT) wages and withholding PIT from the payments.

There are other complex issues associated with back pay. For more information, call the Taxpayer Assistance Center at 1-888-745-3886.

Refer to the Information Sheet: California System of Experience Rating (DE 231Z) (PDF) for information on lowering your UI rate.

Avoid Fraud and Penalties: We actively pursue and prosecute any employer involved in State Unemployment Tax Act Dumping schemes.

We are committed to applying payroll tax laws in a fair and impartial manner. Our Employers’ Bill of Rights (DE 195) (PDF) informs you of your rights during the employment taxation process.

State Unemployment Tax Act Dumping is a tax evasion scheme where shell companies are formed and creatively manipulated to get low UI tax rates. Such abusive schemes leave other employers making up for the unpaid tax. We actively pursue and prosecute employers who participate in SUTA dumping and UI rate manipulation.

For more information about SUTA dumping, reporting fraud or other efforts we lead in creating fairness for businesses, learn about our Underground Economy Operations, where we investigate businesses that avoid paying payroll taxes or who operate within the underground economy.

File Form W-2 and Form W-2C with the IRS. You report wage and withholding information to us on the Quarterly Contribution Return and Report of Wages (Continuation) (DE 9C).

Do not send the state copy of Form W-2 or Form W-2C to the State of California. Forms W-2 and W-2C are not filed with the State because you should already be reporting wage and withholding information to us on the DE 9C.

If you file paper Forms 1099 with the IRS, do not send a paper copy to the Franchise Tax Board (FTB). The IRS will forward the information to the FTB.

e-Services for Business

Use e-Services for Business to manage your employer payroll tax account online.

Contact Us

If you have questions, Contact Payroll Taxes. You can also contact the Taxpayer Assistance Center at 1-888-745-3886 or visit your local Employment Tax Office.