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Employment Development Department
Employment Development Department

FAQs - Payroll Taxes General Information

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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 the Am I Required to Register as an Employer page, refer to the Information Sheet: Employment (DE 231).

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 less than full-time basis. A household employer must report when he/she employs one or more individuals to perform work and pays cash wages of $750 or more in a calendar quarter.

For more information, refer to the following:

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 the Information Sheet: Social Security/Medicare/SDI Taxes Paid by an Employer (DE 231Q).

For more information, refer to the following:

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).

“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 following:

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 view the online Employment Status Course.

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.

The EDD and IRS have different rules regarding family employment. See the Family Help page 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).

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:

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.

Yes, you can file tax returns and wage reports electronically by using one of the following methods:

Employers who are required to file their federal wage reports electronically (those with 250 or more employees) must also file their DE 9C electronically.

Beginning January 1, 2017, a new state law requires all employers to electronically submit employment tax returns, wage reports, and payroll tax deposits to the EDD. For information, visit the E-file and E-pay Mandate for Employers page.

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

Some employers are currently required to pay by EFT. For more information, visit the Electronic Funds Transfer (EFT) page.

Beginning January 1, 2017, a new state law requires all employers to electronically submit employment tax returns, wage reports, and payroll tax deposits to the EDD. For information, visit the E-file and E-pay Mandate for Employers page.

  1. Create a username and password.
    • Go to e-Services for Business.
    • Select the “Enroll” box.
    • Enter the required information and select “Continue.”
    • Select the verification link in the email sent to you by the EDD to complete the enrollment process.

    Important: If you do not verify your email address within 24 hours, you will need to restart the enrollment process.

  2. Log in to e-Services for Business.
    • Select “New Customer.”
    • Select “Register for Employer Payroll Tax Account Number.”
    • Complete the online registration application. To determine the required information you must have available to complete the application, go to Am I Required to Register as an Employer?
    • Select “Submit.”

This process will create an employer payroll tax account number. You are now authorized to access your account in e-Services for Business.

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

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

  • 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 (FEIN) indicated on the W-4.

For more information, see New Employee Registry.

Yes. If you are a corporate officer and you (or you and your spouse) are the sole stockholder(s) of your corporation, you are subject to SDI. However, you may be able to exclude yourself from SDI by sending a completed Sole Shareholder/Corporate Officer Exclusion Statement (DE 459) to the 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.

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, for additional information call the Taxpayer Assistance Center at 1-888-745-3886.

The EDD offers State payroll tax seminars at no cost, either online or classroom-style. Both are designed to help employers comply with State payroll tax laws and cover topics such as how to:

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

To locate and register for a classroom-style seminar, visit Payroll Tax Seminars.
To locate an online course, visit Web-Based Payroll Tax Seminars.

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.

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 form is available online, by ordering it through the Online Forms and Publications page, or by contacting your local Employment Tax Office.

For an explanation of the payroll tax audit process, refer to the Information Sheet: Employment Tax Audit Process (DE 231TA).

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.

Do not send the “state” copy of Form W-2 or Form W-2C to the State of California (the EDD or the Franchise Tax Board [FTB]). The Forms W-2 and W-2C are not filed with the state because you should already be reporting wage and withholding information to the EDD on the Quarterly Contribution Return and Report of Wages (Continuation) (DE 9C).

If you file paper Forms 1099 with the IRS, do not send a paper copy to the FTB, the IRS will forward the information to FTB. For information about filing Forms 1099 electronically, visit FTB – How to File Information Returns.