According to the U.S. Internal Revenue Service (IRS), an employee is defined as “anyone who performs services that can be controlled by an employer.” Employers are responsible for regularly filing employees’ withheld state and federal income taxes and payroll taxes.
Because of the complex nature of income and payroll taxes, it is recommended that a business consult with or retain the services of a certified public accountant or accounting firm.For further assistance, please visit here.
Accountants and accounting firms can be located in the telephone directory Yellow Pages under “accountants.”
State and federal requirements for employee income tax withholding and payroll tax payment are outlined below.
State of California
Companies with employees must register with the California Employment Development Department (EDD) for state income tax withholding and employment taxes.
Different rules apply to various types of employers in determining when each becomes “subject” to the employment tax laws of California. Generally, a business becomes a “subject employer” upon paying wages in excess of $100 in a calendar quarter to one or more employees within the current or preceding calendar year. Once subject, an employer must report for the current and subsequent years regardless of the amount of wages paid.
An employer is required to register with EDD within 15 calendar days after paying more than $100 in wages for employment in a calendar quarter, or whenever a change in ownership occurs.
An employer may download a registration form Or, the employer may call (916) 654-7041 or visit the nearest Employment Tax Office to get a registration form.
The completed registration form may be mailed or faxed to the address or fax number below, also listed at the top of the registration form. If the employer’s payroll service requires an employer account number in order to process payroll, call EDD’s Tele-Reg at (916) 654-8706.
Employment Development Department
Account Services Group, MIC 28
PO Box 826880
Sacramento CA 94280-0001
Fax (916) 654-9211
Employers can now register and manage their accounts online using EDD’s e-Services for Business, open 24 hours a day/ 7 days a week.
The federal Employment Identification Number (EIN – See Registering for Business Taxes, U.S. Federal Government) should be included on the DE 1 registration form so unemployment insurance tax credits will be properly applied.
When the employer registers with EDD, the company will be assigned an eight-digit account number. This number will be used on all reporting forms sent to the company and on all notices relating to former employees. The employer should provide the number to any bank or payroll service that may prepare the company’s tax forms.
NOTE: There are nine different DE 1 registration forms. Non-profit employers, governmental organizations, and employers of agricultural or household workers may be required to complete a specific DE 1 form. Such businesses should check with EDD regarding which form is the appropriate one for the business.
Below are the state taxes that employers must withhold or pay:
EMPLOYEE PAYS; EMPLOYER WITHHOLDS. State personal income tax is the responsibility of the employee; however, the employer withholds the tax from the employee and pays it to the Employment Development Department, who collects on behalf of the California Franchise Tax Board.
State personal income tax is based on the “adjusted gross income” reported – the income amount remaining after various deductions are taken, determined according to individual circumstances. State income taxes are assessed at graduated rates on the “adjusted gross income.”
State Disability Insurance
EMPLOYEE PAYS; EMPLOYER WITHHOLDS. The State Disability Insurance (SDI) program provides benefits to eligible workers experiencing a loss of wages when they are unable to perform their regular or customary work due to a non-occupational illness or injury, or disability resulting from pregnancy or childbirth. SDI is funded entirely by employees through withheld wages and paid to either the SDI fund or a voluntary plan for disability insurance.
State Disability Insurance (SDI) withholding rates are available.
State Unemployment Insurance
EMPLOYER PAYS. The purpose of the State Unemployment Insurance (SUI) program is to provide financial assistance to people who are temporarily out of work through no fault of their own. All employers are required to pay into the Unemployment Insurance Fund, which is used to pay unemployment benefits. All new employers are required to pay a rate of 3.4 percent on the first $7,000 in wages for up to three years. There is a maximum of $434 per employee, per year. (Calculated at the highest UI tax rate of 6.2 percent x $7,000). Generally, the more there is employee turnover, the higher the employer’s unemployment insurance rate will be.
Employment Training Tax
EMPLOYER PAYS. In 1982, the California State Legislature created the Employment Training Panel (ETP) as a cooperative business labor program to provide employers with skilled workers and provide workers with good, long-term jobs. The Legislature also established the Employment Training Tax (ETT). All tax-rated employers, including new employers, are subject to ETT which is used to fund the ETP’s program and training contracts. All employers are assessed a small percent (0.1% or .001) of the first $7,000 of each employee’s wages.
State employment tax rates, allowances and withholding schedules are available.
For information or advice about state income tax withholding and payroll tax payment, or about employment tax seminars for employers, please contact one of the following:
EDD Taxpayer Assistance Center
Phone: 1-888-745-3886 within the United States and Canada
Phone: (916) 464-3502 outside the US and Canada
FAX: (916) 464-3504
EDD Taxpayer Assistance Center
P.O. Box 2068
Rancho Cordova, CA 95741-2068
To Find An Employment Tax Offices Near You
Forms and References