California Payroll Taxes 2026: Complete Overview for Employers

If you employ workers in California, you are subject to one of the most complex state payroll tax systems in the country. Unlike many states that impose just one or two payroll taxes, California requires employers to manage four separate state-level payroll taxes, each with its own rate, wage base, and rules.

This guide breaks down every California payroll tax that applies to employers in 2026, including current rates, taxable wage limits, filing deadlines, and how to actually pay. Whether you are running your first payroll or reviewing your compliance setup, this is the reference you need.

Overview: Four California Payroll Taxes

California imposes four payroll taxes, administered by the Employment Development Department (EDD). Two are paid entirely by the employer, one is paid entirely by the employee (but withheld by the employer), and one is a standard income tax withholding obligation.

Let's examine each tax in detail.

State Unemployment Insurance (SUI)

SUI is California's unemployment insurance program, funded entirely by employer contributions. When a former employee files an unemployment claim, benefits are paid from the state UI fund, and your employer account is charged accordingly.

SUI Rates for 2026

• New employer rate: 3.4% for the first two to three years of operation (until you build an experience rating history)
• Experienced employer range: 1.5% to 6.2%, based on your reserve account balance and claims history
• Taxable wage base: $7,000 per employee per calendar year
• Maximum annual cost per employee: $434 (at the 6.2% maximum rate)

Your SUI rate is assigned annually by EDD and mailed to you each December on Form DE 2088. The rate is based on your experience rating — essentially the ratio of your reserve account balance to the total wages you have paid to employees who later filed unemployment claims. A healthy reserve account (more contributions than claims) earns you a lower rate.

Employment Training Tax (ETT)

The Employment Training Tax funds workforce training programs administered by the state. It is a small but mandatory employer-paid tax.

• Rate: 0.1%
• Taxable wage base: $7,000 per employee per calendar year (same as SUI)
• Maximum annual cost per employee: $7.00

ETT is straightforward: every employer subject to SUI also pays ETT. There is no experience rating for ETT — the rate is the same for all employers. Combined with SUI, the total maximum employer-paid state unemployment cost is $441 per employee per year ($434 SUI + $7 ETT).

State Disability Insurance (SDI)

SDI is an employee-paid tax that funds short-term disability benefits and California's Paid Family Leave (PFL) program. Although the employee bears the cost, the employer is legally responsible for withholding SDI from each paycheck and remitting it to EDD.

SDI Rates and Wage Base

• 2025 SDI rate: 1.1% of all taxable wages
• Wage base: No cap. Beginning January 1, 2024, the SDI taxable wage ceiling was eliminated entirely. All wages are now subject to SDI withholding regardless of amount.

What SDI Covers

SDI provides partial wage replacement for employees who cannot work due to non-work-related illness, injury, or pregnancy. The related PFL program (funded through the same SDI contributions) provides benefits for employees who need time off to bond with a new child or care for a seriously ill family member. Employees can receive approximately 60–70% of their wages (depending on income level) for up to 52 weeks for disability or up to 8 weeks for PFL.

Voluntary Plan Disability Insurance (VPDI)

Employers have the option to establish a Voluntary Plan (VPDI) instead of participating in the state plan. VPDI plans must provide benefits at least equal to the state plan and must be approved by EDD. If approved, employees covered by the VPDI plan do not pay the state SDI tax — instead, contributions go to the private plan.

Personal Income Tax (PIT) Withholding

California personal income tax withholding works similarly to federal income tax withholding. As an employer, you must withhold state income tax from each employee's paycheck based on:

• The employee's filing status and allowances claimed on Form DE 4 (California's equivalent of the federal W-4)
• The employee's pay amount and pay frequency
• The California withholding schedules published by EDD (available in the California Employer's Guide, Publication DE 44)

California Income Tax Rates

California has a progressive income tax with rates ranging from 1% to 13.3%, making it the highest state income tax rate in the nation. The withholding tables account for standard deductions, exemption credits, and the progressive rate structure. Most payroll software handles PIT calculation automatically based on the employee's DE 4.

Where and How to Pay

All four California payroll taxes are reported and paid to the Employment Development Department (EDD) through its online portal:

• EDD e-Services for Business: This is EDD's online system for filing returns, making payments, and managing your employer account. Most employers are required to file and pay electronically.
• E-file and e-pay mandate: If you have 10 or more employees, you are required to file and pay electronically. Employers with fewer than 10 employees may still file by paper, but electronic filing is strongly encouraged and generally faster.
• Payment methods: EDD accepts electronic funds transfer (EFT) through e-Services, or you can authorize an ACH debit from your business bank account.

Filing Schedules and Deadlines

California payroll tax returns are filed on a quarterly basis. The two primary forms are:

DE 9 — Quarterly Contribution Return and Report of Wages

This is the summary return showing total wages paid, total taxes due (SUI, ETT, SDI, and PIT), and the amount you are remitting. Think of it as the "cover page" for your quarterly filing.

DE 9C — Quarterly Contribution Return and Report of Wages (Continuation)

This is the detailed, employee-level wage report listing each employee's name, Social Security number, and wages for the quarter. The DE 9C is critical because EDD uses this data to determine unemployment benefit eligibility and SDI/PFL claim amounts.

Quarterly Filing Deadlines

If the due date falls on a weekend or state holiday, the deadline is extended to the next business day.

Annual Reconciliation

There is no separate annual reconciliation form for California state payroll taxes (unlike the federal Form 940/941 system). However, you must ensure your four quarterly DE 9 filings for the year accurately reflect all wages paid and taxes due. Any discrepancies should be corrected by filing an amended return.

Penalties for Late Filing and Payment

EDD takes timely filing and payment seriously. Here is what you face if you are late:

Late Filing Penalties

• Failure to file: A penalty of 15% of the amount due, plus a $20 penalty per late DE 9C record (per employee per quarter).
• Failure to file electronically (when required): An additional penalty may apply if you were mandated to e-file but submitted paper returns.

Late Payment Penalties

• Late payment penalty: 15% of the unpaid tax amount.
• Interest: EDD charges interest on unpaid taxes at a rate that adjusts periodically (typically around 1% per month or a portion thereof).

Other Penalties

• Failure to withhold SDI or PIT: If you fail to withhold the required employee taxes, you as the employer become personally liable for the amounts you should have withheld.
• Fraud or intentional underpayment: Penalties increase to 25% or more, plus potential criminal prosecution.

Don't Forget Federal Payroll Taxes

California payroll taxes are in addition to your federal payroll tax obligations. As a California employer, you are responsible for both layers:

• Social Security (OASDI): 6.2% employer + 6.2% employee on wages up to $176,100 (2026 limit)
• Medicare: 1.45% employer + 1.45% employee on all wages (plus 0.9% Additional Medicare Tax on employee wages over $200,000)
• FUTA (Federal Unemployment Tax): 6.0% on first $7,000, reduced to 0.6% after the standard credit for paying state unemployment taxes
• Federal income tax withholding: Based on the employee's W-4

For a detailed breakdown of federal payroll taxes, see our Federal Payroll Taxes Explained guide.

Frequently Asked Questions

Do I pay SUI and ETT on all wages?

No. Both SUI and ETT apply only to the first $7,000 in wages per employee per calendar year. Once an employee's year-to-date earnings exceed $7,000, you stop paying SUI and ETT for that employee for the remainder of the year.

Is there a wage cap for SDI in 2026?

No. Starting in 2024, the SDI taxable wage ceiling was eliminated. You must withhold SDI at 1.1% on all wages regardless of amount. This is a significant change from prior years when there was an annual cap.

What if I have employees in California and other states?

You generally owe California payroll taxes on wages paid to employees who perform services in California, regardless of where your business is headquartered. If employees work in multiple states, you may need to apportion wages. Consult a payroll professional or refer to EDD's guidelines on multi-state employment.

Do I need to register with EDD before running payroll?

Yes. You must register with EDD as an employer within 15 days of paying $100 or more in wages in a calendar quarter. Registration can be done online through EDD e-Services for Business. Upon registration, you will receive an Employer Account Number (EAN) and your initial SUI rate assignment.

Can I use payroll software to handle California taxes?

Absolutely. In fact, it is highly recommended. California's payroll tax system is complex enough that manual calculation and filing increases your risk of errors and penalties. Modern payroll platforms like Gusto, Paychex, and ADP are fully configured for California compliance.