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California Payroll Taxes - Emil Estafanous, CPA : Emil Estafanous, CPA

California Payroll Taxes

The state of California enforces four State payroll taxes which are managed by the Employment Development Department (EDD). These State payroll taxes include:

The UI and ETT are are employer contributions and the SDI and PIT are withheld from employees’ earnings. Wages are generally subject to all four payroll taxes. Nonetheless, a few types of employment are not subject to payroll taxes and/or PIT withholding.

Unemployment Insurance (UI)

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 up to three years. 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.

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Employment Training Tax (ETT)

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 CUIC. The maximum tax is $7 per employee, per year ($7,000 x .001).

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State Disability Insurance (SDI)

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 $93,316 in wages paid to each employee in a calendar year.

The 2010 SDI tax rate is 1.1 percent (.011) 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 $1,026.48 per employee, per year ($93,316 x .011).

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Personal Income Tax (PIT)

California PIT is a tax levied by the Franchise Tax Board (FTB) on the income of California residents and on income that nonresidents derive within California. EDD administers the reporting, collection, and enforcement of PIT wage withholding. California PIT is administered by the FTB and EDD for the Governor to provide resources needed for California public services such as schools, public parks, roads, and 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 wages limit.

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About Emil Estafanous, CPA
Certified Public Accountant (CPA) Tax Professional committed in representing taxpayers and resolving their tax problems.

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