If You Have People Working for You

how do business taxes work

The Employment Development Department (EDD) administers California's payroll taxes, including Unemployment Insurance, Employment Training Tax, State Disability Insurance (including Paid Family Leave ), and California Personal Income Tax withholding. Employers conducting business in California are required to register with and file reports and pay taxes to EDD.

The Internal Revenue Service (IRS) administers federal payroll taxes, including social security, Medicare, federal unemployment insurance and federal income tax withholding. For more information, see:

Employers are required to display posters and notices about employment and working conditions. Below is information about those requirements.

Who is an employer?

An employer is a person or legal entity who hires one or more persons to work for a wage or salary. Employers include sole proprietors, partnerships (including co-ownerships), corporations, S corporations, limited liability companies, limited liability partnerships, nonprofit organizations, associations, trusts, public entities, and state and federal agencies.

Private households, local college clubs, and local chapters of fraternities and sororities who employ workers to perform household services are household employers .

Who needs to register with EDD and when?

An employer registers with EDD after paying over $100 in total wages to one or more employees in a calendar quarter:

  • 1st Quarter: January, February, March
  • 2nd Quarter: April, May, June
  • 3rd Quarter: July, August, September
  • 4th Quarter: October, November, December

A household employer must register with EDD after paying $750 in cash wages to one or more employees in a calendar quarter.

What are California's payroll taxes and who pays them?

  • Unemployment Insurance (UI) is paid by employers. UI provides temporary payments to individuals who are unemployed through no fault of their own.
  • Employment Training Tax (ETT) is paid by employers. ETT provides training funds to empower workers, promote business and boost California's economy.
  • State Disability Insurance (SDI) is deducted (withheld) from employees' wages. SDI provides temporary payments to workers who are unable to perform their usual work because of a pregnancy or a nonoccupational illness or injury (work-related disabilities are covered by workers' compensation ). SDI also includes Paid Family Leave (PFL), which provides benefits to workers who need to care for a seriously ill family member or to bond with a new child. Beginning July 1, 2014, California workers may be eligible to receive PFL benefits when taking time off of work to care for a seriously ill parent-in-law, grandparent, grandchild, or sibling.
  • California Personal Income Tax (PIT) is withheld from employees' wages and credited toward the amount due for the employees' annual California state income tax.

Additional California state payroll tax information is available at EDD’s Rates, Withholding Schedules, and Meals and Lodging Values page.

What are California's rates and

wage limitations?

  • UI: Most* employers pay a percentage on the first $7,000 in wages for each employee in a calendar year. The UI rate and taxable wage limit may change each year. The new employer rate is 3.4 percent (.034) for a period of two to three years. The UI tax rate for experienced employers varies based on each employer’s experience and the balance in the UI Fund.
  • ETT: The ETT rate is 0.1 percent (.001) and is paid, like UI, on the first $7,000 in wages for each employee in a calendar year. All new employers pay ETT for the first tax year. After that, most employers pay ETT, but those with a negative reserve account balance do not.
  • SDI: The SDI rate and taxable wage limit may change each year. The current years rates are available on the EDD’s Rates, Withholding Schedules, and Meals and Lodging Values page.
  • PIT: The amount withheld is based on the employee's W-4 or DE 4 filed with the employer.
  • The California Withholding Schedules are available on EDD’s website.

*Nonprofit organizations with an IRS 501(c)(3) exemption and government employers may elect the reimbursable method of UI financing in which they reimburse the UI Fund on a dollar-for-dollar basis for all benefits paid to their former employees.

What forms do I need and where do I get them?

The Employment Development Department (EDD) offers employers the ability to register, file reports, make deposits, and manage their account online using a computer, smart phone or tablet.

  • Visit the Register for Employer Payroll Tax Account Number page to obtain a California Employer Account Number and tax rate information.
  • Enroll in e-Services for Business to manage your account.

For additional registration information or options go to EDD’s Am I Required to Register as an Employer page.

When are the forms and taxes due?

Under California law, employers are required to report specific information periodically. Employers may file electronically or by filing paper forms. The links below will take you to information about the most common forms that employers are required to file with the EDD.

For additional information about these forms, due dates, go to EDD’s Required Filings and Due Dates page.

Where do I get help or answers to questions?

My employees work in more than one state. To which state(s) do I pay taxes?

In today's mobile, computerized society, many employees work away from their employer's office. Their work may be performed in two or more states. The question of to which state to pay taxes is divided into two parts - Unemployment Insurance (UI) tax and Personal Income Tax (PIT).

Source: www.taxes.ca.gov

Category: Taxes

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