Payroll Taxes FAQs

When an employee works in California and other states during the year, the state responsible for covering that employee’s work is decided by using four specific tests. The employee must perform some work in California before the tests can be applied to determine if all the employee’s work can be covered by California. For more details on these four tests, refer to Information Sheet: Multistate Employment (DE 231D) (PDF).

In California, an employee includes:

• Any corporate officer.
• Any worker who is an employee under the ABC test or Borello test.
• Any worker whose services are covered by law.

Employees can work part-time or on a temporary basis. Employment can also include:

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

For More Information

• Information Sheet: Employment (DE 231) (PDF)
• Information Sheet: Types of Employment (DE 231TE) (PDF)
• Information Sheet: Employment Work Status Determination (DE 231ES) (PDF)
• Independent Contractors Misconceptions (DE 573M) (PDF) - English or (DE 573M/S) (PDF) – Spanish

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.

Family employment does not apply if the employing entity is a corporation or limited liability company, even if all the stock of the corporation is owned by one person or jointly held by a married couple.

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.

For More Information

• For California rules: Refer to the Information Sheet: Family Employment (DE 231FAM) (PDF).
• For IRS rules: Refer to the IRS Family Help or the Businesses and Self-Employed.

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).

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

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.

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

However, nonprofit organizations that are exempt under Section 501(c)(3) of the Internal Revenue Code (IRC) have a choice in how they pay for UI costs.

A nonprofit can choose one of two ways to pay:

• Pay the same UI taxes like commercial employers (experience rating method). For more information, refer to Information Sheet: California System of Experience Rating (DE 231Z) (PDF).
• Reimburse the Employment Development Department (EDD) for the full cost of all UI benefits paid to their former employees (reimbursable or cost-of benefits-paid method). See Potential Liability for Unemployment Insurance Benefits When Electing the Reimbursable Method of Financing Under the California Unemployment Insurance Code (DE 1378F) (PDF).

To choose the reimbursable method, a nonprofit must file a Selection of Financing Method by a Nonprofit Organization (DE 1SNP) (PDF) and a Registration Form for Nonprofit Employers (DE 1NP) (PDF) when registering. If the DE 1SNP is filed later, 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 employees who work for religious, charitable, educational, and other nonprofit organizations 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 employees 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 do not need to pay SDI but can choose to 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.

For More Information

• Refer to the Information Sheet: Specialized Coverage (DE 231SC) (PDF).
• Information Sheet: Nonprofit and/or Public Entities (DE 231NP) (PDF)
• Call the Taxpayer Assistance Center at 1-888-745-3886.
• Visit your nearest Employment Tax Office.

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.

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. You can contact the Taxpayer Assistance Center at 1-888-745-3886 to check the status of your payroll tax refund.

Refer to the Information Sheet: Employment Tax Audit Process (DE 231TA) (PDF) for an explanation of the payroll tax audit process.

If a class action settlement involves wage and hour issues and it 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 wages and withholding it from the payments.

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