Understand California UI, ETT, SDI, and PIT withholding, including who pays each payroll tax, 2026 rates, wage limits, reports, and deposits.
California payroll taxes are state employment taxes and withholdings administered by the Employment Development Department: Unemployment Insurance, Employment Training Tax, State Disability Insurance, and California Personal Income Tax withholding. UI and ETT are generally paid by employers; SDI and PIT are generally withheld from employees' wages.
There is no single California payroll-tax rate. Each program has its own payer, taxable-wage rules, rate, purpose, and reporting treatment. Federal payroll taxes—federal income-tax withholding, Social Security, Medicare, and FUTA—are separate and must be handled alongside the California amounts.
UI provides temporary benefits to eligible workers unemployed through no fault of their own. Employers generally pay UI on the first $7,000 of subject wages per employee each calendar year. For 2026, the Schedule F+ range is generally 1.5% to 6.2%. New employers are generally assigned 3.4% for two to three years. An experienced employer's assigned rate appears on its EDD rate notice.
ETT funds worker training and is generally employer-paid. For 2026, the rate is 0.1% on the first $7,000 of subject wages per employee when applicable. An employer with a negative UI reserve account may have a 0.0% ETT rate, so use the rate notice rather than assuming every employer owes it.
SDI funds Disability Insurance and Paid Family Leave benefits. It is generally withheld from employees. The 2026 withholding rate is 1.3% on subject wages, and all wages are subject to SDI contributions because the wage ceiling was removed beginning in 2024. Certain employees or approved voluntary plans may require different handling.
PIT is withheld from employee wages and credited toward the employee's California income-tax liability. The amount depends on taxable wages, payroll frequency, employee withholding information, and EDD schedules. It is not a flat percentage and it is not an added employer tax when properly withheld.
Assume a new California employer pays one employee $50,000 during 2026, all wages are subject, the employer has the standard 3.4% new-employer UI rate, and ETT applies.
The employer directly bears $245 of California UI and ETT. The employee bears the $650 SDI withholding and the calculated PIT withholding. The employer must hold withheld amounts in trust-like payroll liabilities and remit them timely. Federal payroll costs and withholdings are additional.
If the employee earns another $10,000, UI and ETT generally do not increase after the $7,000 wage base has been reached, but SDI increases by $130 because it has no wage ceiling in 2026. PIT also changes under the withholding calculation.
"Subject wages" are amounts that must be reported and considered under a program. "Taxable wages" are the portion actually subject to a particular tax after applying that program's wage ceiling or exclusions. The same payment can receive different treatment for UI, ETT, SDI, and PIT.
For example, wages above $7,000 can remain reportable even though they no longer increase UI or ETT for that employee that year. Pre-tax benefits, meals and lodging, fringe benefits, sick pay, owner compensation, and other payments require program-specific analysis. Do not use federal taxable wages as an automatic substitute for every California wage base.
Employers generally report quarterly totals on DE 9 and employee-level wages and withholding on DE 9C. Payroll tax deposits are made through the DE 88 process, normally electronically. Deposit timing depends on the type of tax and the employer's assigned schedule; quarterly reports do not mean every payment is quarterly.
A dependable workflow is:
If gross wages are $10,000, employee SDI is $130, PIT is $300, and other federal deductions are ignored for this simplified entry, net pay is $9,570. The books should record $10,000 of wage expense, $9,570 of cash/net payroll, $130 of SDI payable, and $300 of PIT payable. Employer UI and ETT are additional expense and payable amounts. When deposits are made, the liabilities decrease; the payment should not create a second payroll expense.
Review payroll before hiring the first employee, paying a corporate officer, adding taxable benefits, changing payroll providers, acquiring a business with employees, hiring household help, or using contractors whose classification is uncertain. Review EDD rates each December and update payroll software before the first check of the new year.
Heath Income Tax provides payroll and bookkeeping support for California small businesses, including organized payroll records, liability reconciliations, and coordination between payroll filings and business tax returns.
Which California payroll taxes does the employer pay?
Employers generally pay UI and ETT. Employees generally fund SDI and PIT through withholding, although the employer is responsible for collecting, reporting, and remitting them.
What is the 2026 California SDI rate?
The 2026 SDI withholding rate is 1.3% of subject wages, with no wage ceiling.
What is the 2026 California UI rate?
Tax-rated employers generally range from 1.5% to 6.2% on the first $7,000 of subject wages. New employers are generally assigned 3.4%. Use the employer's EDD notice for the actual rate.
Is Paid Family Leave a separate payroll tax?
No separate PFL withholding is added. Paid Family Leave benefits are part of the SDI program and are funded through SDI contributions.
Are California payroll taxes deductible?
Employer-paid payroll taxes are generally business expenses, subject to ordinary tax rules. Employee withholding is not an employer expense; it is part of gross wages withheld and remitted on the employee's behalf.
The definitions and examples on this page are for informational purposes only and do not constitute tax advice. Tax laws change frequently and individual circumstances vary. Consult a qualified tax professional before making decisions based on this content.
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