Article title: What Payroll Taxes Do Employers Pay in California?
Article length: 1500-1700 words
URL: https://rivermate.com/blog/payroll-taxes-employers-california

Meta title: What Payroll Taxes Do Employers Pay in California?
Meta description: Learn what payroll taxes employers pay in California, including UI, ETT, SDI, and federal taxes. A practical guide for businesses hiring in the state.

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What payroll taxes do employers pay in California?

If you hire employees in California, you need to handle both federal taxes and California payroll taxes. Some of these taxes are employer-paid, while others are taken from employee paychecks and sent to the state.

That distinction matters because payroll mistakes often happen when businesses know a tax exists but misunderstand who actually pays it. California’s system is not impossible to manage, but it is detailed, and it leaves little room for sloppy payroll processes. The California Employment Development Department payroll tax overview explains the state’s framework for UI, ETT, SDI, and PIT.

For most California employers, the real challenge is not learning the names of the taxes. It is understanding which taxes increase employer cost, which ones must be withheld from employees' wages, when deposits are due, and how the rules change once you hire across state lines or start building a remote team.

Overview of California payroll taxes

California state payroll taxes support several public programs. They help fund unemployment insurance, workforce training, disability coverage, paid family leave, and state income tax collection.

In practice, employers must do two things at once. They must pay certain taxes out of company funds, and they must withhold other taxes from employee pay stubs and remit them correctly.

The four state payroll taxes are unemployment insurance, employment training tax, state disability insurance, and personal income tax. Unemployment insurance UI and employment training tax ETT are employer contributions. State disability insurance SDI and personal income tax PIT are withheld from employee paychecks. This is why payroll taxes in California affect both labor cost and payroll administration.

The four core California payroll taxes

California employers are expected to calculate, withhold when required, report, and submit payroll taxes to the EDD. Even when payroll software handles the math, the employer still owns the compliance result. That is why payroll tax accounts, filing calendars, and payroll tax payments need active review instead of blind automation.

Unemployment insurance

Unemployment insurance provides temporary financial assistance to workers who lose their jobs through no fault of their own. This is an employer-paid tax. Employees do not contribute to California UI through payroll deductions. UI applies to the first $7,000 of taxable wages paid to each worker each year, and the tax rate varies based on the employer’s experience. New employees are generally assigned a 3.4% starting rate for up to three years.

This matters because the UI tax is not static. Employers with a history of more claims can see higher rates over time. That makes unemployment insurance more than a simple setup item. It is a live cost that can change as your workforce changes.

Employment training tax

Employment training tax is also employer-paid, but it is much smaller. It funds job training and workforce development programs in California. The rate is 0.1% of the first $7,000 of wages per employee each year.

Because the rate is low, some businesses treat ETT like a minor detail. That is a mistake. Small taxes still become compliance issues when they are omitted, especially if the error repeats over several quarters.

State disability insurance

State disability insurance funds provide benefits for workers who cannot work because of a non-work-related illness, injury, pregnancy, or qualifying family leave. That includes paid family leave benefits in cases like bonding with a new child or caring for a seriously ill family member. SDI contributions are generally taken from employee wages, while the employer is responsible for withholding and remitting the amount. California states that for 2026, the SDI withholding rate is 1.3%, and there is no maximum tax because there is no taxable wage limit for SDI.

This is one reason California payroll tax requirements feel heavier than they first appear. Even when a tax is not employer-funded, the company is still responsible for correct withholding.

Personal income tax

Personal income tax is the California state income tax withheld from employee wages. Employers do not pay California personal income tax out of company funds, but they must calculate and remit it properly. PIT withholding is based on employee forms such as the DE-4, also called the employee's withholding allowance certificate, and on California’s withholding schedules. Because California uses progressive income tax rates, there is no one-size-fits-all rate for state income tax withholding.

In other words, when employers ask whether they pay state income tax, the practical answer is no for funding, yes for administration. The employer is the party that must make the personal income tax PIT work correctly in payroll.

Federal payroll taxes that employers must also pay

California employers must also handle federal payroll taxes. Social Security tax requires an employer contribution of 6.2% of wages up to the annual federal wage base, which the IRS lists as $184,500 for 2026. Medicare tax requires an employer contribution of 1.45% of all covered wages, with employees contributing the same amount.

Employers may also need to withhold the Additional Medicare Tax from higher-earning employees, though that extra portion is not matched by the employer. The IRS Employer’s Tax Guide outlines these federal payroll taxes.

The federal unemployment tax act also applies. FUTA generally applies to the first $7,000 of wages, and many employers qualify for credits that lower the effective rate. California employers should still watch this closely because California has been subject to FUTA credit reduction rules in recent years.

Registering as an employer with the California EDD

An employer must register with the California EDD once it pays more than $100 in wages in a calendar quarter. After registration, the business receives an EDD employer payroll tax account number, which is used to file returns, submit payroll taxes, and manage payroll tax accounts through e-Services for Business. The EDD says registration must be completed within 15 days after the threshold is met.

If you are hiring your first worker in the state, it helps to pair payroll registration with a broader compliance checklist. Our guide on how to hire employees in California covers related steps such as hiring compliance and the California new employee registry.

Payroll tax filing and deposit deadlines

UI and ETT are generally reported quarterly. Employers must also submit quarterly wage reports. PIT and SDI deposits may follow monthly or semiweekly schedules, depending on total tax liability and deposit rules. The EDD warns that missing payroll tax deadlines can trigger penalties and interest, including a 15% penalty for late deposits. The EDD payroll tax deposit guidance is the best place to confirm the current schedule.

The key point is simple. Filing and paying are not the same task. A business can file on time and still create an unpaid tax problem if deposits are late.

Common payroll tax mistakes employers should avoid

The most common payroll tax errors are also the most preventable. Misclassifying workers as independent contractors is a big one. So is failing to update payroll software when tax rates change. Employers also make mistakes when they apply the wrong taxable wage limit, calculate unemployment insurance incorrectly, or assume that a provider will catch every filing issue automatically.

These problems do not just create rework. They can increase total payroll tax liability, lead to notices from the Employment Development Department, and create avoidable friction with employees when deductions on employee paychecks are wrong.

Managing payroll taxes for remote employees

If an employee works in California, California payroll tax laws usually apply even when the company is based elsewhere. This is where remote hiring gets harder. A business may already follow payroll tax laws in its home state, then suddenly need to layer California payroll tax requirements, state income tax withholding, SDI tax handling, and EDD reporting on top.

This gets even more complex when companies hire across multiple jurisdictions or expand internationally. For teams dealing with that kind of growth, Rivermate’s guide to EOR tax implications and its overview of how to hire international employees explain how Employer of Record services can reduce payroll and compliance risk without requiring each company to build the infrastructure alone.

Conclusion

California payroll taxes are manageable once you separate employer contributions from employee withholdings and build a process that stays current. The cost of getting them wrong is usually much higher than the effort required to set payroll up correctly. If your team is spending too much time navigating payroll taxes, multi-state hiring, and compliance, exploring an EOR like Rivermate can be a practical next step.

FAQs

What payroll taxes do employers pay in California?

Employers pay unemployment insurance and employment training tax directly, and they also manage withholding and remittance for state disability insurance and personal income tax. They must also handle federal payroll taxes such as Social Security, Medicare tax, and FUTA.

Do employers pay California state income tax?

No. State personal income tax is generally withheld from employee wages. The employer’s role is to calculate the withholding and remit it to the EDD.

What is the California unemployment insurance tax?

It is an employer-paid tax that helps fund UI benefits paid to eligible workers who lose employment through no fault of their own. It generally applies to the first $7,000 of wages per employee each year.

Are payroll taxes higher in California?

They can feel higher because California uses four state payroll taxes and detailed reporting rules, even though not every tax is employer-funded. The bigger issue for many businesses is compliance complexity, not just the raw tax rate.