Pay ‘n Time

Articles

California Payroll Taxes: A Complete Overview

California payroll taxes consist of four primary components administered by the Employment Development Department (EDD):

  • Unemployment Insurance (UI)
  • Employment Training Tax (ETT)
  • State Disability Insurance (SDI), which includes Paid Family Leave (PFL)
  • California Personal Income Tax (PIT) withholding

Current-Year (2026) California Payroll Tax Rates

1. Unemployment Insurance (UI)

  • Who pays: Employer
  • 2026 rate range: 1.5% to 6.2% (experience-rated)
  • New employer rate: Typically 3.4% for first 2–3 years
  • Taxable wage base: $7,000 per employee per year

2. Employment Training Tax (ETT)

  • Who pays: Employer
  • 2026 rate: 0.1% except for companies specifically notified that their rate is 0.0% for a given year. ETT is not owed if the employer has a negative UI reserve balance in some cases
  • Taxable wage base: $7,000 per employee per year

3. State Disability Insurance (SDI) — Includes PFL

  • Who pays: Employee (withheld by employer)
  • 2026 rate: 1.3% of wages
  • Wage limit: No wage cap (since 2024)

Paid Family Leave (PFL)

  • Fully funded through SDI (no separate tax)
  • The 1.3% SDI rate includes both DI and PFL funding

4. California Personal Income Tax (PIT)

  • Who pays: Employee (withheld)
  • 2026 rate:
    • No flat rate — progressive brackets (approx. 1% to 13.3%)

Based on:

  • Employee Form DE 4
  • EDD-issued withholding schedules (Method A & B)

Where to Find Current and Future Tax Rates

The authoritative source is the California EDD.

Primary reference page

This page provides:

  • Current-year rates (UI, ETT, SDI)
  • Withholding schedules for PIT
  • Historical rate tables (via DE 3395)

Additional official references

  • Employer guide (DE 44)
  • Annual rate notices (DE 2088)
  • SDI/PFL contribution pages

Practical guidance

For each new year:

  • Rates are typically released late Q4 (Nov–Dec) for the upcoming year
  • Payroll systems should be updated before first payroll in January

How Employer-Specific Rates Are Determined and Communicated

UI Rate Assignment (Experience Rating System)

Unlike SDI and ETT, UI rates are employer-specific.

Determination factors

  • Prior unemployment claims charged to employer
  • Payroll size
  • Reserve account balance

These inputs feed into California’s experience rating formula, producing a customized UI rate within the annual schedule.

How Rates Are Communicated

1. Annual Rate Notice (DE 2088)

  • Issued by EDD each year (typically December)
  • Delivered via:
    • Mail
    • EDD e-Services for Business

Contents include:

  • Employer’s UI rate
  • ETT applicability
  • Reserve account balance
  • Assigned rate schedule

Employers generally have 60 days to protest the assigned rate

2. Statement of Charges (DE 428T)

  • Issued annually (typically September)

Shows:

  • Benefit charges from former employees
  • Impact on future UI rates

3. SDI and ETT Rates

  • Not employer-specific
  • Published annually by EDD
  • Apply uniformly to all employers (except special cases like voluntary plans)

Timing and Payroll Implementation

Annual cycle

Sep - Benefit charge statements (DE 428T) issued

Nov–Dec - New tax rates published by EDD

Dec–Jan - DE 2088 rate notices issued

Jan 1 - New rates take effect

Employer action checklist

At year-end, employers should:

  1. Update payroll system tax tables:
    • SDI rate (e.g., 1.3%)
    • PIT withholding schedules
  2. Input new UI rate from DE 2088
  3. Verify:
    • No SDI wage cap applied
    • Correct UI wage base ($7,000)
  4. Communicate changes internally (especially SDI/PFL impact)

Practical considerations

  • Unlike SDI, PIT has no fixed rate — it’s progressive
  • Under-withholding can lead to employee tax liabilities

Summary Table

Tax Who Pays Type Purpose
UI Employer Payroll tax Unemployment benefits
ETT Employer Payroll tax Workforce training
SDI Employee Payroll tax Disability & PFL benefits
PFL Employee (via SDI) Included in SDI Family leave benefits
PIT Employee Income tax withholding State income tax

How These Taxes Work Together

From a payroll processing perspective:

Employer responsibilities

  • Calculate and pay:
    • UI
    • ETT
  • Withhold and remit:
    • SDI (including PFL)
    • PIT

Employee deductions (visible on paycheck)

  • SDI (labeled as CASDI in many payroll systems)
  • PIT withholding

Employer-only costs (not shown on paycheck)

  • UI
  • ETT

Example: Simplified Payroll Breakdown

Assume:

  • Gross wages: $5,000

Employee deductions:

  • SDI (e.g., ~1.1%): $55
  • PIT (varies): $400 (example)

Employer-paid taxes:

  • UI (varies): ~$150 (example)
  • ETT (~0.1%): $5

Key insight

  • PFL is included in the $55 SDI deduction, not separately itemized

Compliance and Reporting

California employers must:

  • File payroll tax returns (typically quarterly)
  • Deposit taxes on required schedules (monthly, semi-weekly, etc.)
  • Provide employees with wage statements showing:
    • SDI withholding
    • PIT withholding

Most reporting is done through:

  • EDD e-Services for Business

Common Pitfalls

  1. Misclassifying workers (employee vs. contractor)
  2. Incorrect SDI withholding limits
  3. Forgetting that PFL is not a separate tax
  4. UI rate increases due to poor termination practices
  5. Mismatch between federal W-4 and CA DE 4
Back to Top