PAYROLL TAXES: STATE

Not only does the federal government require all those taxes, your individual state requires a whole other set of taxes.  Each state will be slightly different in their terminology and percentages.  This will be California specific, but the principles still apply to other states.  In California, the Employment Development Department (EDD) is in charge of all this.  You’ll have to make an account with them to remit all these taxes.

 

Let’s take a look at California’s state taxes:

- Personal Income Tax (PIT)

- State Disability Insurance (SDI)

- Unemployment Insurance (UI)

- Employment Training Tax (ETT)

Personal Income Tax (PIT)

Just like at the federal level, your state will need a slice of your income to pay for all the public services.  You’ll once again refer to your employee’s W4 to determine what percentage of their pay must go to income taxes.  But this time you’ll use your state’s withholding table instead of the IRS’s.  California’s withholding tables are located on the California’s Employer’s Guide (DE 44).

 

Remember, income tax is taken from an employee’s wage, it is not matched by the employer.

 

 

State Disability Insurance (SDI)

The State Disability Insurance is comprised of two benefits: Disability Insurance (DI) and Paid Family Leave (PFL).

 

Disability Insurance (DI) benefits are for workers who lose wages when they are unable to perform their regular or customary work due to a non-work-related illness or injury.

 

Paid Family Leave (PDL) benefits are for workers who take time off work to care for a seriously ill family member.  Benefits are also available to new parents.

 

Only the employee contributes to SDI.  There is no employer match.  The tax amount is based off the employee’s wage.  This tax also has a wage limit.  Anything beyond this limit is not taxed.   As of 2020:

Employee Pays:              1.0%             on the first $122,909

Unemployment Insurance (UI)

Your state’s unemployment program is assisted by FUTA (all the federal unemployment taxes you paid).  Your state will collect additional unemployment taxes to fully fund the program.  If you should ever find yourself unemployed, you sign up to receive benefits through your state, not the feds. 

 

Only the employer contributes to Unemployment Insurance.  The tax amount is based off the employee’s wage (but not taken out of their wage).  This tax also has a wage limit.  Anything beyond this limit is not taxed. 

 

As of 2020, new employers start with a UI tax rate of 3.4%.  This rate will last two to three years.  After that, your rate will go up or down with each passing year.  The method of determining your contribution rate is called your Experience Rating.  This rating system uses a formula to measure the stability of the employer’s employment and the potential for future unemployment.  At the end of each year, you’ll be sent a Notice of Contribution Rates and Statement of UI Reserve Account (DE 2088) that will tell you your new rate.

New Employer Pays:              3.4%             on the first $7,000 of employee’s wage

The lowest your rate can be is 1.5% while the highest is 6.2%.  So you technically start on the lower side, at least you got that going for ya.

 

 

Employment Training Tax (ETT)

ETT provides funds to train employees in targeted industries to improve the competitiveness of California businesses.  The ETT promotes a healthy labor market by helping California businesses invest in a skilled and productive workforce and develop the skills of new and incumbent workers.  At least that’s what their website tells me.

 

Only the employer contributes to ETT.  The tax amount is based off the employee’s wage (but not taken out of their wage).  This tax also has a wage limit.  Anything beyond this limit is not taxed.  As of 2020:

Employer Pays:              0.1%             on the first $7,000 of employee’s wage

Thus the maximum tax per employee is $7 a year.  Not too bad.

 

 

Self-Employed

Once again, if you’re self-employed things are done differently.  A self-employed person only pays Personal Income Tax (PIT).  If you meet certain qualifications, you can elect to enroll in the other insurance programs if you want their protection.  Look into: Elective Coverage For Employers and Self-Employed Individuals (DE 231EC).

 

 

Deposits & Paperwork

To deposit all these state tax withholdings, you will need to file a Payroll Tax Deposit (DE 88).  That form works for all state taxes (PIT, SDI, UI, ETT).  You must deposit online through California Employment Development Department (EDD).  Their payment system is known as E-Services For Business.

 

Unfortunately, these taxes are not all due at the same time.

 

Unemployment Insurance (UI) and Employment Training Tax (ETT) are due at the same time.  These are the taxes only paid by the employer.  They are due quarterly.

1st Quarter (Jan, Feb, Mar)                           April 30th

2nd Quarter (Apr, May, Jun)                        July 31st

3rd Quarter (Jul, Aug, Sep)                          October 31st

4th Quarter (Oct, Nov, Dec)                        January 31st

Personal Income Tax (PIT) and State Disability Insurance (SDI) are due at the same time.  Their due date is based off your federal deposit schedule (monthly or semiweekly).  So you will be sending these taxes in together once a month or after every payday.

 

Now for the paperwork.  Employers are required to file both:

- Quarterly Contribution Return and Report of Wages (DE 9)

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

The DE 9C reports individual employee wages for each quarter.

 

The DE 9 reconciles reported wages and paid taxes for each quarter.  If your DE 9 shows an overpayment, the EDD will send you a refund automatically.  If you’ve underpaid, you should immediately deposit the remaining amount.

 

They are due quarterly:

1st Quarter (Jan, Feb, Mar)                           April 30th

2nd Quarter (Apr, May, Jun)                        July 31st

3rd Quarter (Jul, Aug, Sep)                          October 31st

4th Quarter (Oct, Nov, Dec)                        January 31st

Even if you paid no wages during a quarter, you are still required to submit a DE 9 and DE 9C.