California · State guide
California payroll, one account and four state taxes
The Employment Development Department collects more than one thing under the word “payroll tax.” Personal income tax is withheld from employees. Unemployment Insurance and the Employment Training Tax are employer costs on the first $7,000. State Disability Insurance is withheld from all subject wages, with no wage cap.
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01
Register with EDD before wages are paid
A California employer opens an account with the Employment Development Department, usually through e-Services for Business. That account is where you file the Quarterly Contribution Return and Report of Wages (DE 9) and the wage detail (DE 9C), and where you pay UI, ETT, SDI, and personal income tax withholding. Federal Form 941 still goes to the IRS. California does not file it for you.
Register when you become an employer, not after the first quarter feels busy. A late registration does not erase wages you already paid. If you have no other California presence and you hire one person who works in the state, read the multi-state note and open the EDD account anyway. One employee is enough.
02
The four lines, in 2026 numbers
| Item | Who pays | 2026 figure |
|---|---|---|
| Personal income tax withholding | Employee, from wages | Tables, using DE 4. No single wage base. |
| Unemployment Insurance | Employer | New employers 3.4% for two to three years. Experience rates on Schedule F+ run from 1.5% to 6.2%. Taxable wage limit $7,000. |
| Employment Training Tax | Employer | 0.1% of the first $7,000. |
| State Disability Insurance | Employee, from wages | 1.3% of subject wages. No wage limit since 2024. Funds disability insurance and Paid Family Leave. |
EDD prints these rates on its contribution-rate page and in the 2026 payroll-tax overview, DE 202. A new employer’s 3.4% UI rate on $7,000 is $238. ETT adds $7. SDI is not capped, so a $80,000 salary has $1,040 withheld for SDI at 1.3%. That last figure surprises people who remember an old wage ceiling. Do not stop SDI at $7,000. That ceiling belongs to UI and ETT, not to SDI.
03
DE 4 is not a copy of the W-4
Federal income-tax withholding follows Form W-4 and Publication 15-T. California personal income tax withholding follows the Employee’s Withholding Allowance Certificate (DE 4) and the EDD schedules for the year. EDD offers a wage-bracket method and an exact calculation method. Use the 2026 version for 2026 pay dates. If the employee does not give you a DE 4, follow EDD’s instruction for withholding as if the form were missing. Do not assume the federal W-4 answers the California question. The allowance systems are not the same.
Household employees are a special case: EDD says you are not required to withhold personal income tax from them unless you and the employee agree to it. Most other employees are in the ordinary rule. Supplemental wages, such as bonuses, have their own flat-rate instructions in the employer guide. Look up the current flat rate in that guide rather than borrowing the federal 22%.
Subject wages and taxable wages are different words in California. Subject wages are generally all wages, and they drive SDI and the benefit record. Taxable wages for UI and ETT stop at $7,000. The DE 9C asks you to report in a way that keeps those ideas apart. Swapping the columns is a common filing error.
04
$16.90 is the state floor, not always the wage
The Department of Industrial Relations set the statewide minimum wage at $16.90 an hour for all employers on 1 January 2026, up from $16.50. The same notice says the salary threshold tied to the state overtime exemption is twice the minimum wage for full-time work: $16.90 × 2 × 40 × 52 = $70,304 a year. That number is only one part of an exemption test. Duties still matter, and a higher local or industry wage can change the math.
Fast food restaurant employers and certain healthcare employers are on separate, higher schedules that DIR publishes as supplements. Many cities and counties also set a minimum above $16.90. Pay the highest rate that applies to that hour of work. A business in a city with its own ordinance cannot stop at the state number because the payroll software’s “California” setting says $16.90.
Meal and lodging credits against the minimum wage require a voluntary written agreement, and the credit cannot exceed the amounts in the wage order. Do not subtract a rent figure from the paycheck because it feels fair. The order prints the cap.
California wage statements have a detailed list in Labor Code section 226: gross wages, hours, rates, piece rates if any, deductions, net pay, the pay period, and the employer’s name and address, among other items. A stub that would pass in a state with no stub statute can fail here. Build it from section 226.
05
Close the quarter in two places
During the quarter, deposit California personal income tax and SDI on the schedule EDD assigns. Deposit UI and ETT with the quarterly return unless you are told to pay more often. At quarter end, file DE 9 and DE 9C and Form 941. At year end, give employees a Form W-2 that includes California wages and withholding in the state boxes, and file the state copy the way EDD requires that year.
Federal Social Security and Medicare still apply on top of SDI. They are not alternatives. On an $4,000 paycheck the employee side is 6.2% Social Security ($248), 1.45% Medicare ($58), and 1.3% SDI ($52), before federal and California income tax. Income tax depends on the W-4, the DE 4, and the tables. This paragraph does not invent those dollar amounts.
Workers’ compensation insurance is required for California employers who have employees, and it is not one of the four EDD taxes. Budget it beside payroll. Paid sick leave is a labor rule that affects the wage ledger when someone is out. The accrual and cap rules live in the Labor Code, not in DE 202. Mention them in your pay-policy notes so the payroll system has a leave balance to draw from.
Keep going with Texas if you want the opposite structure, or New York if you want another state that withholds income tax and adds benefit deductions. Corrections: [email protected].