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Payroll Tax in California: Complete Guide 2026

Tax information is for educational purposes only and does not constitute tax advice. Consult a licensed tax professional for your specific situation.

California has one of the most comprehensive state payroll tax systems in the nation, consisting of four separate programs that employers and employees must navigate. These include Unemployment Insurance (UI), Employment Training Tax (ETT), State Disability Insurance (SDI), and Personal Income Tax (PIT) withholding. Together with federal payroll taxes (Social Security and Medicare), California employers and employees face a multilayered system of withholding and contributions. This guide explains each component, current rates, wage bases, and strategies for compliance.

California Payroll Tax Rates (2026)

Employer-Paid Taxes

Tax	Rate	Wage Base
Unemployment Insurance (UI)	~1.50% — ~6.20%	First ~$7,000 per employee
Employment Training Tax (ETT)	~0.10%	First ~$7,000 per employee

Employee-Paid Taxes

Tax	Rate	Wage Base
State Disability Insurance (SDI)	~1.10%	First ~$174,200
Personal Income Tax (PIT) withholding	Varies by income	No cap

Combined Federal and State Overview

Tax	Rate	Paid By	Wage Base
Social Security (OASDI)	~6.20%	Employee + ~6.20% employer	~$176,100
Medicare	~1.45%	Employee + ~1.45% employer	No cap
Additional Medicare	~0.90%	Employee only	Over ~$200,000
California UI	~1.50% — ~6.20%	Employer	~$7,000
California ETT	~0.10%	Employer	~$7,000
California SDI	~1.10%	Employee	~$174,200
California PIT	Varies	Employee	No cap

How California Payroll Taxes Work

Unemployment Insurance (UI)

California UI is an employer-only tax that funds unemployment benefits for workers who lose their jobs. New employers are assigned a rate of approximately ~3.40% for the first two to three years. After that, the rate is experience-rated based on your company’s claims history, ranging from ~1.50% to ~6.20%. The taxable wage base is the first ~$7,000 of each employee’s annual wages.

Employment Training Tax (ETT)

ETT funds worker training programs administered by the Employment Development Department (EDD). The flat rate of ~0.10% applies to the first ~$7,000 of each employee’s wages. Only employers subject to UI are required to pay ETT.

State Disability Insurance (SDI)

SDI is an employee-paid tax that funds short-term disability benefits and Paid Family Leave (PFL). The ~1.10% rate applies to the first ~$174,200 of annual wages. Employees who earn more than the wage base cap stop paying SDI once they reach that threshold during the year.

SDI is withheld from employee paychecks by the employer and remitted to the EDD. Self-employed individuals can elect to participate in SDI through an Elective Coverage program.

Personal Income Tax (PIT) Withholding

Employers must withhold California PIT from employee wages based on the employee’s Form DE 4 (Employee’s Withholding Allowance Certificate) and the state’s withholding schedules. California’s graduated income tax rates (ranging from ~1.00% to ~13.30%) determine the withholding amount. PIT has no wage base cap.

Employer Registration and Compliance

All California employers must register with the EDD within ~15 days of paying more than ~$100 in wages during a calendar quarter. Registration can be completed online through e-Services for Business.

Key compliance requirements include:

Quarterly filing: Employers file Form DE 9 (Quarterly Contribution Return) and DE 9C (Quarterly Contribution Return and Report of Wages) each quarter.
Payment schedule: Most employers pay taxes quarterly, but those with large payrolls may be required to submit semi-weekly federal deposits.
Annual reconciliation: Employers must reconcile W-2s with quarterly filings.
Record retention: Payroll records must be maintained for at least ~4 years.

Comparison to National Average

State	State UI Wage Base	SDI/Disability	Additional Payroll Taxes
California	~$7,000	~1.10% (employee)	ETT ~0.10%
New York	~$12,800	~0.50% (employee)	None
Texas	~$9,000	None	None
Florida	~$7,000	None	None
National average	~$16,500	Varies	Varies

California’s UI wage base of ~$7,000 is the federal minimum and among the lowest in the nation. However, the addition of SDI and ETT means California employers and employees collectively face a higher payroll tax burden than most states.

Tips for Minimizing California Payroll Tax

Manage your UI experience rate. Contest unjustified unemployment claims promptly, as each approved claim increases your UI rate.
Monitor the SDI wage base. High-earning employees stop owing SDI once wages exceed ~$174,200, reducing per-paycheck deductions later in the year.
File and pay on time. Late filings and payments incur penalties of ~10% plus interest. Set up electronic payments through EDD’s e-Services to avoid missed deadlines.
Classify workers correctly. Misclassifying employees as independent contractors triggers back taxes, penalties, and interest. California’s ABC test under AB 5 makes the independent contractor classification narrow.
Use the EDD’s online tools. E-Services for Business provides free access to filing, payment, and account management.
Review withholding certificates annually. Ensure employees update their DE 4 forms when life circumstances change to avoid under- or over-withholding.
Consider voluntary SDI for self-employed. Self-employed individuals can elect SDI coverage, which provides disability and PFL benefits.

Key Takeaways

California payroll taxes include UI (~1.50% — ~6.20%), ETT (~0.10%), SDI (~1.10%), and PIT withholding.
UI and ETT are employer-paid; SDI and PIT are employee-paid.
The SDI wage base is ~$174,200, while UI and ETT apply to the first ~$7,000 of wages.
California’s ABC test for worker classification is among the strictest in the nation.
Employers must register with the EDD and file quarterly returns.
Late payments trigger a ~10% penalty plus interest.

Next Steps

Federal Income Tax Guide 2026 — Understand federal payroll obligations alongside California requirements.
Self-Employment Tax Guide — How California payroll taxes affect self-employed individuals.
State Income Tax Rates Comparison 2026 — Compare California’s overall tax burden.
Tax Bracket Calculator — Estimate combined payroll and income tax obligations.
Find a CPA Near You — Get help with California payroll compliance.