State income tax funds state services, such as education, correctional facilities, MediCal, police and fire services and road improvements. The state of California is one the many states that requires employers to withhold state income tax from employees' paychecks. California refers to state income tax as Personal Income Tax (PIT).
The California Tax Franchise Board levies personal income tax on wages. It requires that employers withhold the tax on income paid to resident and nonresident employees who work in the state. The California Employment Development Department administers the collection and reporting of state income tax withholding and enforces the respective laws.
Employers are also required to withhold federal income tax. To help determine the amount of federal income tax to withhold, the employer gives new employees a W-4 form to complete. To help determine the amount of state income tax to withhold,the employer also gives them a DE-4 form. The employee states her withholding conditions on both forms, including filing status and allowances. Though the employee can use her W-4 form for state income tax withholding purposes, completing a DE-4 form is also recommended. Solely relying on a W-4 can result in the employee under-withholding state income tax, particularly if more than one source contributes to her household income.
The employer uses the employee's DE-4 form and the California withholding tax tables to figure out how much state income tax to withhold each pay period. The employer can use the wage bracket method, which shows the withholding based on the employee's allowances, pay period, filing status and wages, or the employer can use the exact calculation method, which requires that the employer figure out the tax according to the employee's pay period, allowances, filing status, exemption allowance credit amounts and standard deduction. The employer can obtain the exemption allowance credits from tables 1 through 5 of the exact calculation withholding tax tables. This information is available on the California Employment Development Department's website.
California employers are required to give employees an itemized wage statement each time they are paid. The statement should include all deductions made for the pay period. Deductions, such as state and federal income tax withheld, can be listed separately or as a total amount. Employers are required to file quarterly reports with the California Employment Development Department showing wages earned and taxes paid for the quarter. Employers can make either next banking day, semiweekly, monthly or quarterly tax deposits to the department.
- California Department of Industrial Relations: Paydays, Pay Periods, and the Final Wages
- California Employment Development Department: Withholding Schedules for 2011 (PDF)
- California Employment Development Department: Withholding Schedules for 2011 Method B (PDF)
- California Employment Development Department: DE-4 Form (PDF)
- California Employment Development Department: Rates, Withholding Schedules, and Meals and Lodging Values
- California Employment Development Department: Rates -- Required Filings and Due Dates
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