California has four separate payroll taxes you need to handle the moment you pay wages — two come out of your employees' paychecks, two come out of your pocket. Miss a deposit and EDD (California's Employment Development Department) hits you with a 10% penalty before you even get a warning letter. Here's exactly what each tax is, what you owe in 2026, and how to set it all up correctly from day one.
- Four taxes apply: SDI and PIT come out of employee wages; SUI and ETT are your cost as the employer.
- 2026 SDI rate is 1.1% on all wages — no cap — paid entirely by the employee.
- New employer SUI rate is 3.4% on the first $7,000 per employee; ETT adds 0.1%.
- Register with EDD within 15 days of paying $100 or more in wages — before your first payroll, not after.
- Most small employers file and deposit quarterly; quarterly returns are due the last day of the month after each quarter ends.
What California Employers Must Withhold in 2026
Running payroll for small businesses in California means tracking four distinct taxes, not just federal ones. Think of them in two buckets: what you withhold from your employee's paycheck, and what you pay on top.
Employee-paid (you withhold and remit):
- SDI — State Disability Insurance: 1.1% of gross wages, no wage cap. California eliminated the cap in 2024, so a $100,000 earner now contributes $1,100/year. This funds short-term disability and paid family leave.
- PIT — Personal Income Tax withholding: California uses its own DE-4 form (not the federal W-4) to determine how much state income tax to withhold each pay period. Rates vary based on your employee's allowances and income level — you use EDD's published withholding tables to calculate the exact amount.
Employer-paid (your cost, not the employee's):
- SUI — State Unemployment Insurance: New employers pay 3.4% on the first $7,000 of each employee's wages per year. After a few years, your rate adjusts based on your claims history — it can range from 1.5% to 6.2% for experienced employers, per EDD's annual rate schedule.
- ETT — Employment Training Tax: 0.1% on the first $7,000 per employee. It's small, but it's required. This goes toward California's workforce training programs.
Take Maria, who opened a 3-person cleaning business in Fresno last spring. She assumed California payroll worked like federal — just one set of forms. Instead she discovered she needed a separate CA employer account number, had to collect DE-4s from all three employees, and had to make quarterly deposits to EDD on top of federal FUTA. Getting the structure right upfront saved her from a penalty notice on her very first quarterly return.
2026 California Payroll Tax Rates at a Glance
| Tax | Who Pays | 2026 Rate | Wage Base | Where It Goes |
|---|---|---|---|---|
| SDI | Employee | 1.1% | No cap | EDD (disability + PFL fund) |
| PIT | Employee (withheld by employer) | Varies per DE-4 | No cap | FTB (Franchise Tax Board) |
| SUI | Employer | 3.4% new / 1.5–6.2% experienced | First $7,000 | EDD (unemployment fund) |
| ETT | Employer | 0.1% | First $7,000 | EDD (workforce training) |
A quick note on the DE-4 vs. W-4 distinction: California does not accept the federal W-4 for state withholding purposes. You must collect a CA DE-4 from every new hire. If an employee doesn't submit one, you withhold as if they claimed zero allowances — which usually means too much comes out of their check. Spare yourself the complaints and hand out DE-4s on day one.
Also: SUI rates are not fixed. EDD mails your updated rate notice each December, reflecting your prior year's claims history. New employers lock in at 3.4% for the first few years — that's actually a relatively low rate compared to the top of the range.
EDD Registration, Deposit Schedules & Filing Deadlines
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1Register with EDD before your first payroll. You're required to register within 15 days of paying $100 or more in wages. Do it online at e-Services for Business at edd.ca.gov — it takes about 15 minutes.
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2Get your CA Employer Account Number. This is separate from your federal EIN — you need both. Your CA number comes from EDD registration; your federal EIN comes from the IRS. Don't mix them up on forms.
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3Know your deposit schedule. Most new small employers are quarterly depositors. You become a monthly depositor only once you accumulate $350 or more in PIT withheld in a month — uncommon for a 1–5 person operation. When in doubt, assume quarterly.
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4File DE 9 + DE 9C each quarter. The DE 9 is your quarterly reconciliation; the DE 9C is the payroll detail (who earned what). Bookmark these quarterly tax deadlines: Q1 → April 30 | Q2 → July 31 | Q3 → October 31 | Q4 → January 31.
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5Issue W-2s and close out Q4 by January 31. Your final quarterly DE 9 and DE 9C (the Q4 return, also due January 31) serve as the year-end reconciliation — California no longer uses a separate annual reconciliation form. W-2s go to employees and to EDD by that same January 31 deadline. File everything together and the year is wrapped.
Missing an EDD deposit triggers a 10% penalty — automatically, no grace period, no first-time warning. Set calendar reminders the moment you hire your first California employee. April 30, July 31, October 31, January 31. Four dates a year. Put them in now.
California's SDI program also covers Paid Family Leave (PFL) — employees who take time off to bond with a new child or care for a seriously ill family member draw from the same SDI fund. That 1.1% deduction does double duty.
Three things to set up once — and then California payroll runs on autopilot. First: register with EDD at edd.ca.gov before you cut your first paycheck. Second: collect a DE-4 from every employee on day one (not the federal W-4 — California uses its own form). Third: set four quarterly calendar reminders for deposits and returns (April 30, July 31, October 31, January 31).
Yes, California has more moving parts than most states — a separate PIT withholding system, an SDI deduction that applies to every dollar earned, and a dual EIN requirement (federal + CA). But none of it is complicated once you know what you're dealing with. Use a California paycheck calculator to double-check your withholding math before you run your first payroll.
Frequently Asked Questions
Does California have a state income tax withholding separate from federal?
Yes — and you'll need to treat it as a completely separate system from the IRS. You'll collect a CA-specific DE-4 from each employee (not the W-4), run the numbers through EDD's withholding tables, and remit to EDD, which passes it along to the Franchise Tax Board. Don't substitute the federal W-4; California won't accept it for state withholding purposes.
What is the CA SDI rate for 2026 and who pays it?
The 2026 SDI rate is 1.1% of gross wages — your employee pays it, you withhold it and remit it to EDD. One thing worth knowing: there's no wage cap. Since California removed it in 2024, you'll deduct 1.1% from every dollar your employee earns, not just up to a threshold.
How do I register as a new employer with California's EDD?
Head to e-Services for Business at edd.ca.gov and register before you run your first payroll — you're required to do it within 15 days of paying $100 or more in wages. You'll get a CA Employer Account Number from EDD, which is separate from your federal EIN. You need both on your filings, so keep them in different fields and don't mix them up.
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