How to Figure Payroll Taxes for a Person in California

Payroll tax in California is quite comprehensive.

For employees in California, in addition to calculating federal withholding taxes, you must withhold California personal income tax (PIT) and state disability insurance (SDI).



Calculate PIT using either the Wage Bracket Method or the Exact Calculation Method. Either method can be used to manually calculate PIT. However, if you are setting up a computer system to calculate PIT, you must use the latter method. If an employee has not submitted a Form DE4, Employee's Withholding Allowance Certificate, use the employee's Form W-4 elections when calculating PIT. If the employee submits a DE4, then use those elections.



For supplemental wages, withhold PIT at a flat percentage of 9.3% for bonuses and stock options, and 6% for commissions and all other types of supplemental pay.



The state publishes the SDI rate and taxable wage limit annually. For example, the rate for 2009 is 1.1% and the taxable wage limit is $90,669. This means the maximum annual withholding for an individual is $997.36 ($90,669 * 1.1%). You can find the current rate on the California Employment Development (EDD) website by following the California Tax Rates link in the Resources section below. It is also listed in the annual DE 44 publication. The SDI tax includes two components, disability insurance (DI) and paid family leave (PFL).



In addition to employee withholding, employers in California must pay state unemployment insurance (SUI) and employment training tax (ETT). The wage limit for both SUI and ETT is the first $7,000 of wages you pay the employee each calendar year. The state will notify you of your SUI tax rate annually. The ETT rate is the same for all employers, and it is also listed in the annual DE 44 publication. For 2010, the rate is .1%. Do not withhold SUI or ETT from your employee's pay; the employer must pay this liability.

Things You'll Need

• California Publication DE44
• California Method A Withholding Schedules
• California Method B Withholding Schedules
• SUI rate

Instructions

PIT--Wage Bracket Method

1. Look up the value for the number of additional withholding allowances the employee claims on Form W-4 or DE4 in Table 2--Estimated Deduction Table in the current California Method A Withholding Schedules.

2. Subtract the result from the employee's taxable wages to arrive at the wages subject to withholding.

3. Subtract the number of additional withholding allowances the employee claims from the total allowances on their W-4 or DE4. The result is the "net allowances."

4. Locate the correct table in the California Withholding Schedules for the employee's marital status and your payroll period frequency.

5. Look up the employee's wages subject to withholding (calculated in step 2) in the first two columns of the table.

6. Read across the table to the column for the employee's "net allowances" to find the amount to withhold for PIT.

PIT-Exact Calculation Method

1. Look up the value for the number of additional withholding allowances the employee claims on From W-4 or DE4 in "Table 2-Estimated Deduction Table" in the current California Method A Withholding Schedules.

2. Subtract the result from the employee's taxable wages to arrive at the wages subject to withholding.

3. Look up the value for the standard deduction in "Table 3-Standard Deduction Table" in the current California Method B Withholding Schedules.

4. Subtract the standard deduction from the wages subject to withholding (calculated in step 2) to arrive at taxable income.

5. Find the correct marital status and payroll frequency within "Table 5-Tax Rate Table" and perform the computation listed for the employee's taxable income.

6. Subtract the tax credit listed in "Table 4-Exemptoin Allowance Table". Do not include additional allowances.

7. Withhold the result as PIT.

SDI and Employer Taxes

1. Multiply the employee's taxable wages by the current SDI tax rate. Do not withhold more than the annual maximum.

2. Withhold the result from your employee's paycheck.

3. Check the employee's year-to-date taxable wages as of the prior pay period. If these wages are more than $7,000, you do not owe SUI or ETT on the current payment. If they total less than $7,000, continue to step 4.

4. Multiply the employee's taxable wages, up to the wage limit, by your SUI rate.

5. The result is your SUI tax liability.

6. Multiply the employee's taxable wages, up to the wage limit, by the current ETT tax rate.

7. The result is your ETT tax liability.

Tips & Warnings

• If you don't have a complete, valid W-4 or DE4 for the employee, withhold as single with zero allowances.

• Be sure you use the current version of Publications DE44.

• Do not over-withhold SDI.

References

• EDD: Employment Development Department

Resources

• EDD: California Rates and Withholding
• EDD: California Tax Forms and Publications