California employers are required to withhold state income tax from employees' paychecks. California is also one of the few states that require employees to pay state disability insurance via payroll deduction. California employees are also subject to federal withholding, which includes federal income tax, Social Security tax and Medicare tax. Employers pay federal withholding to the Internal Revenue Service (IRS), and California payroll taxes to California's Employment Development Department.
Obtain the employee's state income tax withholding conditions, such as filing status and allowances, from her W-4 form. In most cases, California employers are required to use this form for both federal and state income tax withholding purposes. But if the employee wants to claim a different marital status or allowances for state withholding purposes, she must complete California's employee withholding allowance certificate, the DE 4 form.
Use the employee's W-4 or DE 4 form and California's withholding tax tables to figure state income tax withholding. Refer to the low-income exemption table to determine if the employee's income is less than or equal to the amounts given; if so, don't withhold any state income tax --- see page 38 of the 2010 California's Employer's Guide. Use the withholding tax table that pertains to the employee's pay period, income and allowances to figure the withholding tax.
Calculate state disability insurance according to the tax rate and annual wage base. For 2010, the tax rate was 1.1 percent, up to the first $93.316 paid to each employee for the year.
Calculate Social Security tax at 6.2 percent of gross income, up to the annual wage limit of $106,800. Figure Medicare tax at 1.45 percent of all gross income.
Use IRS Circular E and the employee's W-4 form to figure federal income tax withholding. This process is similar to state income tax withholding, except that the employer uses the IRS withholding tax tables instead of the state's withholding tax tables. You can use the wage bracket method, which gives the exact amount of the tax to withhold based on the employee's filing status, pay period, allowances and income; or the percentage method. In the latter case, see page 37 of Circular E to determine the allowances amount for each pay period. Then refer to the percentage tax table that corresponds with the employee's pay period and filing status to determine the amount of federal income tax to withhold.
Tips & Warnings
- California's Employment Development Department requires employers to file quarterly wage and withholding reports via paper, magnetic media (diskette or compact disc) or e-file. The department determines tax payment schedules, which may be due on the next banking day, semiweekly, monthly or quarterly.
- The IRS requires employers to file quarterly or annual reports for Social Security, Medicare and federal income tax liabilities. It requires semiweekly or monthly tax deposits.
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