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Wages Overview

Understanding the different types of wages is important for accurate tax withholding and reporting. The amounts reported may be used to determine a claimant’s benefits. Proper reporting helps ensure that claimants receive the benefits they are entitled to.

Wages are what you pay your employees for their service, and can include:

  • Salaries, hourly pay, piece rate, or payments by the job.
  • Commissions and bonuses.
  • Overtime and vacation pay.
  • The reasonable cash value of compensation other than cash.

Wages are paid by check, cash, electronic debit, payment apps, or the fair value of noncash payments such as meals and lodging. Payments are wages even if the employee is a casual worker, a day or contract laborer, a part-time or temporary worker, or paid by the day, hour, or any other way.

Important: If you pay your employee’s share of Social Security, Medicare, and State Disability Insurance (SDI) without taking it out from their wages, these payments may also count as wages.

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Subject wages are the total amount of wages, regardless of the Unemployment Insurance (UI) and Employment Training Tax (ETT) taxable wage limits. They must be reported and are used to determine the amount of UI, SDI, and Paid Family Leave (PFL) benefits a person can receive if they file a benefit claim.

Some types of employment and payments are exempt and not considered subject wages.

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PIT wages are the wages subject to California Personal Income Tax (PIT) which must be reported as income on an individual’s California income tax return. Most payments for employees’ services are reportable as PIT wages.

The total PIT wages reported to the EDD on the Quarterly Contribution Return and Report of Wages (Continuation) (DE 9C) for an employee in a calendar year should match the amount reported on their federal Wage and Tax Statement (Form W-2) in Box 16 (state wages, tips, etc.).

Note: The PIT wages may not be subject to UI, ETT, SDI, or California PIT withholding in every situation. For example, wages for agricultural and domestic services are subject to UI, SDI, ETT, and reportable as PIT wages, but are excluded from PIT withholding (unless both the employer and the employee agree to withhold PIT).

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In most cases, subject and PIT wages are the same. However, there are some exceptions. Here are some examples of when they are not the same:

  • Retirement contributions: Employee salary reduction contributions to a qualified retirement or pension plan count as subject wages but are not reportable as PIT wages.
  • Family employees: Wages paid to family employees (like minor children under 18, registered domestic partners, spouses, and parents) may not be reported as subject wages, but are reportable as PIT wages.
  • Church employees: Payments made to employees of churches are not reported as subject wages but are reportable as PIT wages.

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Meals and lodging provided for free or at a reduced rate to an employee are considered wages. However, if the meals and lodging are given for the employer’s convenience and on the employer’s premises, they are not subject to PIT.

  • If your employees are under a contract of employment or union agreement, the taxable value of meals and lodging cannot be less than what is stated in that contract or agreement.
  • If the cash value is not in an employment contract or union agreement, refer to the current year meals and lodging values.

To figure out the value of lodging, multiply the amount you could rent the property for (ordinary rental value) by 66 2/3 percent (0.6667). You can calculate ordinary rental value on a monthly or weekly basis.

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Call the Taxpayer Assistance Center at 1-888-745-3886 or visit your local Employment Tax Office.

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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.

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