What Are State Payroll Taxes?
California has four state payroll taxes which are administered by the Employment Development Department (EDD).
- Unemployment Insurance (UI) and Employment Training Tax (ETT), which are employer contributions.
- State Disability Insurance (SDI) and Personal Income Tax (PIT), which are withheld from employees’ wages.
Wages are generally subject to all four payroll taxes. However, some types of employment are not subject to payroll taxes and/or PIT withholding. For more information, please refer to Information Sheet: Types of Employment (DE 231TE).
The UI program is part of a national program administered by the U.S. Department of Labor under the Social Security Act. The UI program provides temporary payments to individuals who are unemployed through no fault of their own.
UI is paid by the employer. Tax-rated employers pay a percentage on the first $7,000 in wages paid to each employee in a calendar year. The UI rate schedule and amount of taxable wages are determined annually. New employers pay 3.4 percent (.034) for a period of two to three years. The EDD notifies employers of their new rate each December. The maximum tax is $434 per employee per year. (Calculated at the highest UI tax rate of 6.2 percent x $7,000.)
Governmental and certain nonprofit employers may elect the reimbursable method of financing UI in which they reimburse the UI Fund on a dollar-for-dollar basis for all benefits paid to their former employees.
The ETT provides funds to train employees in targeted industries to improve the competitiveness of California businesses. The ETT funds promote a healthy labor market and helps California businesses invest in a skilled and productive workforce and develop the skills of workers who directly produce or deliver goods and services.
The ETT is an employer-paid tax. Employers subject to ETT pay one-tenth of 0.1 percent (.001) on the first $7,000 in wages paid to each employee in a calendar year. The tax rate is set by statute at 0.1 percent (.001) of UI taxable wages for the employers with positive UI reserve account balances and employers subject to Section 977(c) of the California Unemployment Insurance Code. The maximum tax is $7 per employee, per year ($7,000 x .001).
The State Disability Insurance (SDI) program provides temporary benefit payments to workers for non-work-related disabilities. SDI tax also provides Paid Family Leave (PFL) benefits. PFL is a component of SDI and extends benefits to individuals unable to work because they need to care for a seriously ill family member or bond with a new child.
SDI is a deduction from employees’ wages. Employers withhold a percentage for SDI on the first $114,967 in wages paid to each employee in a calendar year.
The 2018 SDI tax rate is 1.00 percent (.010) of SDI taxable wages per employee, per year. SDI is set by the California State Legislature and may change yearly. This includes the rate for PFL. The maximum tax is $1,149.67 per employee, per year ($114,967 x .010).
California PIT is a tax levied on the income of California residents and on income that nonresidents derive within California. The EDD administers the reporting, collection, and enforcement of PIT wage withholding. The Franchise Tax Board (FTB) and the EDD administer the California PIT program for the Governor to provide resources needed for California public services, such as schools, public parks, roads, health, and human services.
California PIT is withheld from employees’ pay based on the Employee’s Withholding Allowance Certificate (Form W-4 or DE 4) on file with their employer. There is no taxable wage limit. Please refer to the PIT withholding schedule. The tax rate withheld is based on the employee's Form W-4 or DE 4. There is no maximum tax.
For assistance, call our toll-free number 1-888-745-3886 or visit your local Employment Tax Office.