FAQs – Payroll Taxes General Information

Can I file tax reports electronically or file them using alternate methods?

Yes, EDD offers several electronic methods of filing wage and tax information. Employers can file returns over the Internet from their e-Services for Business account. Go to the e-Services for Business homepage, select “e-Services for Business Login”, and select “Enroll for a username and password.”

Employers and tax preparers may also file payroll tax reports using alternate forms printed on their own computers. For additional information about alternate forms, see Alternate Forms

For additional information on electronic filing options, see e-Services for Business Advantages and Features.

Can I pay taxes electronically?

Yes, all employers may pay their payroll taxes by Electronic Funds Transfer (EFT); in fact, some employers are required to do so. The EDD will notify you if you become a mandatory EFT filer.

For additional information on EDD’s EFT program or to voluntarily pay by EFT, call us at 916-654-9130 or see Electronic Funds Transfer. You may also download the EFT Program Information Guide (DE 27) and EFT Authorization Agreement (DE 26), order them through the Online Forms and Publications page, or call the Taxpayer Assistance Center at 1-888-745-3886 to have them mailed to you.

You may also pay your payroll taxes by credit card.

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Can I register for a new California employer account number? Can I change an address or inactivate an existing employer account number?

Yes, employers and/or their agents can register online as well as change and/or request account inactivation on existing businesses online.

To register for a new employer payroll tax account number, go to the e-Services for Business homepage and select “Employer Payroll Tax Account Number Registration.”

To change an address and/or request to inactivate an existing employer payroll tax account number, access your account through e-Services for Business.

To begin using e-Services for Business, go to the e-Services for Business homepage and select “e-Services for Business Login” and then “Enroll for a username and password.”

For additional information on e-Services for Business, see e-Services for Business Advantages and Features.

Do I have to report and pay taxes on family members who work for me?

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):

  • Child under 18 employed by parent or partnership consisting only of parents. “Child” includes adopted children but does not include stepchildren or foster children.
  • Individual employed by spouse or registered domestic partner.
  • Parent employed by son or daughter. “Parent” includes adoptive parents but does not include stepparents or foster parents.

Examples:

  • Karen owns a bakery and hires her 16-year-old son Jordan and 18-year-old daughter Victoria to work in the business. Since he is under 18, Jordan is an excluded family employee and his wages are not subject to UI, ETT, and SDI. Since Victoria is 18, she is not an excluded family employee and her wages are subject to UI, ETT, and SDI. Both children’s wages are subject to PIT.
  • Mark and Irene, husband and wife, co-own a pizza parlor. They hire Irene’s 17-year-old son Chris (from her first marriage) to work in the business. Because one of the partners (Mark) is not his natural or adopted parent, Chris is not an excluded family employee and his wages are subject to UI, ETT, SDI, and PIT.
  • Clay and Jeanette own all the stock in KCK Corporation. They hire their children, all under 18, to work for KCK. Since the children are employed by a corporation, they are not family employees and their wages are subject to UI, ETT, SDI, and PIT.
  • Gordon and his daughter Flo are partners in a dental practice. They hire Marilyn (Gordon’s wife and Flo’s mother) as their bookkeeper. Since Marilyn is working for a partnership consisting only of her spouse and her daughter, she is an excluded family employee and is subject only to PIT.

For more information, refer to the Information Sheet: Family Employment (DE 231FAM).

The EDD and IRS have different rules regarding family employment. See “Family Help” on the IRS website. For California rules, refer to the Information Sheet: Family Employment (DE 231FAM).

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).

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

Do nonprofit organizations and public entities have to pay California payroll taxes?

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 entities 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 elect to either:

  • Pay the same UI taxes as those paid by commercial employers (experience rating method). Refer to the Information Sheet: California System of Experience Rating (DE 231Z) for more information on the experience rating method.
  • Reimburse 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)

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

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 may include:

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

Public entities (State of California, counties, cities, districts, public agencies and authorities, school districts, and community colleges) may elect the experience rating or reimbursable method of financing UI and must withhold PIT. Public entities are not subject to SDI but may elect 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 may elect UI and/or SDI coverage for employees whose services are not in subject employment. For more information, refer to the Information Sheet: Specialized Coverage (DE 231SC), call EDD’s toll-free number 1-888-745-3886, or visit your nearest Employment Tax Office.

Attend a Seminar: We offer no-fee seminars to assist employers in complying with California’s payroll tax laws. Visit the Payroll Tax Seminars page to find available classroom seminars or online courses.

Does EDD have no-fee tax seminars?

Yes, the EDD offers no-fee Payroll Tax Seminars to help you better understand the payroll tax laws.

At our seminars, you will learn how to:

  • Prepare payroll tax returns.
  • Avoid unnecessary tax liabilities.
  • Distinguish between independent contractors and employees.

You will also learn about:

  • New laws and emerging issues.
  • Services provided by EDD.
  • Customized topics to meet specific needs.

If you would like to attend a seminar, please go to our Payroll Tax Seminars page. If you have any questions, please call our toll-free number 1-888-745-3886 or visit your local Employment Tax Office.

How can I lower my UI rate?

Refer to the Information Sheet: California System of Experience Rating (DE 231Z) for several ways to help lower your UI rate. Note: Some employers participate in SUTA dumping or UI rate manipulation schemes. The EDD actively pursues and prosecutes such employers. For additional information about SUTA dumping, reporting fraud or other EDD efforts in creating a level playing field for business, access our Underground Economy Operations page.

How do I report new hires to the New Employee Registry?

You may report new employee information by any of the following:

  • Log in to your e-Services for Business account and file the Report of New Employee(s) (DE 34) over the Internet. To enroll for an account, go to the e-Services for Business homepage, select “e-Services for Business Login,” and then select “Enroll for a username and password.”
  • Paper Report of New Employee(s) (DE 34)
  • An alternate paper form with the required information.
  • A copy of the employee’s W-4 form with the employee’s start-of-work date, your California employer account number, and your federal employer identification number (FEIN) indicated on the W-4.

For reporting requirements, how to get forms, FAQs, and phone numbers, see New Employee Registry.

I own my own corporation. Do I have to have SDI?

If you are a corporate officer and you (or you and your spouse) are the sole stockholder(s) of your corporation, you may be able to exclude yourself from SDI by sending a completed Sole Shareholder/Corporate Officer Exclusion Statement (DE 459) to EDD. The exemption becomes effective the first day of the quarter in which it is filed. You can download and print or order a DE 459 through the Online Forms and Publications page.

If back pay (wages) is awarded in a class action settlement, who is responsible for reporting the wages and payroll taxes?

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 of the workers (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. Call 1-888-745-3886 for additional information.

What are my rights as an employer?

We are committed to applying payroll tax laws in an equitable and impartial manner. Our Employers’ Bill of Rights (DE 195) informs you of your rights during the employment taxation process. The DE 195 is available online, by ordering it through the Online Forms and Publications page, or by contacting your local Employment Tax Office.

What are wages?

Wages are all compensation for an employee’s personal services, whether paid by check or cash, 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 the taxability of wages paid to employees. Payments are considered wages even if the employee is: a casual worker, a day or contract laborer, part-time or temporary worker, or 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, and/or State Disability Insurance (SDI) without deducting the amounts from their wages, these payments may also be wages. For more information refer to Information Sheet: Social Security/Medicare/SDI Taxes Paid by an Employer (DE 231Q).

For more information, refer to the Information Sheet: Wages (DE 231A), call our toll-free number 1-888-745-3886.

What can I expect from a payroll tax audit?

For an explanation of the payroll tax audit process, refer to the Information Sheet: Employment Tax Audit Process (DE 231TA) or call our toll-free number 1-888-745-3886.

What is the difference between a common law employee and an independent contractor?

“Common law,” as we know it, has evolved slowly over the centuries based upon judgments rendered by the courts on individual cases. The common law of employment, as it exists today, is the total of all court decisions related to the question of what constitutes an employment relationship.

An employer-employee relationship exists when a person who hires an individual to perform services has the right to exercise control over the manner and means by which the individual performs his or her services. The right of control, whether or not exercised, is the most important factor in determining the relationship. The right to discharge a worker at will and without cause is strong evidence of the right of direction and control. The following factors should also be taken into consideration:

  • Whether or not the one 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 in performing the services and accomplishing the desired result.
  • Whether the principal or the person providing the services supplies the tools, equipment, and place of work for the person doing the work.
  • The length of time for which the services are performed to determine whether the performance is an isolated event or continuous in nature.
  • The method of payment, whether by time, a piece rate, or by the job.
  • Whether or not the work is part of the regular business of the principal.
  • Whether or not the parties believe they are creating the relationship of employer and employee.
  • The extent of actual control exercised by the principal over the manner and means of performing the services.
  • Whether the principal is or is not engaged in a business enterprise or whether the services being performed are for the benefit or convenience of the principal as an individual.
  • Whether the worker can make business decisions that would enable him or her to earn a profit or incur a financial loss. Investment of the worker’s time is not sufficient to show a risk of loss.

A written contract which claims to create 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 test.

The modern tendency is to find employment when the work being done is an integral part of the regular business of the employer and the worker does not furnish an independent business or professional service relative to the employer.

If you are unsure as to whether your workers are employees or independent contractors, refer to the Information Sheet: Employment Work Status Determination (DE 231ES) or call our toll-free number 1-888-745-3886. You may also refer to Independent Contractors Misconceptions (DE 573M-English or DE 573M/S-Spanish).

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

Attend a Seminar: We offer no-fee seminars to assist employers in complying with California’s payroll tax laws. Visit the Payroll Tax Seminars page to find available classroom seminars or online courses.

For more information, call our toll-free number 1-888-745-3886 or visit your local Employment Tax Office.

What is SUTA dumping?

SUTA dumping (UI rate manipulation) is a tax evasion scheme where shell companies are formed and creatively manipulated to obtain low UI tax rates. Such abusive schemes leave other employers making up for the unpaid tax. The EDD actively pursues and prosecutes employers who participate in SUTA dumping and UI rate manipulation.

For additional information about SUTA dumping, reporting fraud or other EDD efforts in creating a level playing field for business, access our Underground Economy Operations page.

Where do I send the state copies of my W-2s and 1099s?

Employers are not required to send the state copies of Forms W-2 to California.

If you file paper Forms 1099 with the IRS, the IRS will forward the information to FTB. For information about filing Forms 1099 electronically or on magnetic media, see Information Returns.

Who is a domestic or household employer?

An employer of domestic services can be a:

  • Private household
  • Local college club
  • Local chapter of a college fraternity or sorority

Domestic work may include, but are not limited to the services of cooks, waiters, waitresses, butlers, housekeepers, governesses, governors, maids, valets, baby-sitters, janitors, laundresses, furnace persons, caretakers, home health care workers, handypersons, gardeners, chauffeurs, crews of private yachts, and pilots of private airplanes for family use.

A domestic employer becomes subject to state employment taxes as follows:

NOTE: Any domestic employer subject to reporting requirements and paying wages of $20,000 or less annually may elect to pay state payroll taxes annually, rather than quarterly, by completing an Employer of Household Worker Election Notice (DE 89), which is in the registration packet that is mailed to you. This method requires filing an Employer of Household Worker(s) Quarterly Report of Wages and Withholdings (DE 3BHW) to report workers’ wages quarterly and an Annual Payroll Tax Return for Employer of Household Workers (DE 3HW) to report and pay payroll taxes. The quarterly form is due the first day following the calendar quarter and delinquent the last day of the month following the quarter. The annual return is due on January 1 following the close of the prior calendar year and becomes delinquent if not filed and paid on or before January 31. If at any time during the year the total wages paid exceed $20,000, the election to file and pay annually is terminated, and you will be required to file a DE 3HW to close out the prior quarters and start to file the DE 9, DE 9C, and DE 88.

For more information, refer to the Household Employer Web page, the online Household Employer’s Guide (DE 8829), or you can order the DE 8829 through the Online Forms and Publications page. You may also download our Information Sheet: Household Employment (DE 231L).

Who is an employee?

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 less than full-time or temporary basis. The law does not exclude services from employment which are commonly referred to as day labor, part-time help, casual labor, temporary help, probationary, or outside labor.

For more information, refer to the Information Sheet: Employment (DE 231). You may also call our toll-free number 1-888-745-3886 or visit your local Employment Tax Office.

Who is an employer?

There are two types of employers: those who run a business and those who hire domestic services. Employers who run a business can be a person or a legal entity and include:

  • Sole Proprietors
  • Partnerships
  • Joint Ventures
  • Corporations
  • Limited Liability Companies
  • Estates
  • Associations and Trusts
  • Nonprofit and Charitable Organizations
  • Public Entities, Including State and Federal Agencies
  • Other Organizations

An employer becomes subject to state employment taxes upon paying a worker(s) more than $100 in a calendar quarter and must register with the Department within 15 days.

For more information, visit our Am I Required to Register as an Employer Web page, refer to the Information Sheet: Employment (DE 231), or call our toll-free number 1-888-745-3886.

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