Before You Start

This guide assumes you have a basic understanding of federal payroll taxes and administrator access to your payroll system (e.g., Gusto, QuickBooks Payroll).

Overview

35 min
Setup Time
Advanced
Difficulty
Quarterly
Maintenance

What You’ll Learn

  • Registering with the California EDD for payroll taxes
  • Calculating and withholding California State Income Tax (CA PIT)
  • Understanding State Disability Insurance (SDI) and Unemployment Insurance (UI)
  • Navigating local payroll taxes in California
  • Ensuring timely filing and payment to avoid penalties

1. Preparation Steps

Before processing payroll in California, ensure these accounts are in place:

Required Registrations & Accounts

  • Employer Identification Number (EIN) with IRS
  • Employer Payroll Tax Account with EDD (California)
  • CA State Income Tax Payable (Liability)
  • CA SDI Payable (Liability)
  • CA UI Payable (Liability)
  • CA Employment Training Tax (ETT) Payable (Liability)

Optional (but recommended)

  • Local Payroll Tax Payable (e.g., SF Commuter Tax)
  • Worker’s Compensation Insurance (Required for most employers)

2. Key California Payroll Taxes

California imposes several distinct payroll taxes that employers must understand.

State Income Tax & SDI

These taxes are withheld from employee wages.

CA State Income Tax (PIT):
  • Withheld from employee pay.
  • Progressive tax rates.
  • Based on employee W-4 and DE 4 forms.
State Disability Insurance (SDI):
  • Employee-paid contribution.
  • Fixed rate up to an annual wage cap.
  • Covers disability and paid family leave.

Unemployment Insurance & ETT

These are employer-paid taxes.

Unemployment Insurance (UI):
  • Employer-paid tax.
  • Experience-rated, varies by employer.
  • Funds unemployment benefits.
Employment Training Tax (ETT):
  • Employer-paid tax.
  • Small, fixed rate.
  • Funds job training programs.

3. Step-by-Step: Withholding and Reporting

Here is a high-level workflow for ensuring accurate withholding and reporting for California payroll taxes.

Expert Tip: Leverage modern payroll software (e.g., Gusto, QuickBooks Payroll) for automated calculations and filings. While this guide covers the principles, software significantly reduces manual error and ensures compliance.

4. Setting Up Your Payroll System

  1. 1

    Register with the EDD

    Obtain your California Employer Payroll Tax Account Number from the Employment Development Department (EDD). This is crucial for all state payroll tax filings.

  2. 2

    Configure Employee Withholding

    Ensure each employee completes both federal W-4 and California DE 4 forms. Input these details accurately into your payroll software to calculate CA PIT and SDI.

  3. 3

    Set Up Employer-Paid Taxes

    Configure your payroll system to correctly calculate and track UI and ETT contributions based on your EDD assigned rates and wage bases.

Common Error: Outdated Withholding

Always use the latest withholding schedules and tax rates provided by the EDD. Outdated information can lead to under-withholding and penalties for employees and the employer.

5. Quarterly and Annual Filings

Key Filing Checklist

  • Form DE 9 (Quarterly Contribution Return) filed with EDD
  • Form DE 9C (Quarterly Contribution Return and Report of Wages) filed
  • Timely payment of all withheld and employer-paid taxes
  • Annual W-2s and Form DE 7 (Annual Reconciliation Statement) submission
  • Review local payroll tax requirements and file accordingly

Need Help?

Get Expert Payroll Advice

California payroll compliance can be daunting. Our experts can help you navigate state regulations and ensure accuracy.

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