California Payroll Taxes: SDI, SUI, ETT, and State Income Tax Withholding

California places more separate obligations on an employer than most states, and they are administered together rather than as one charge.

For a business hiring here for the first time the sequence matters as much as the amounts. Registration has to be in place before wages are paid, not before the first return is due, and remote employees in other states raise the same question again from the other direction.

This covers the four obligations an employer carries, how registration works, how deposit timing is determined, what the quarterly return reports, and the mistakes that come up most often.

Overview: California's Four Employer Payroll Tax Obligations

Employers in California must administer four separate payroll tax components, three of which are paid or matched by the employer and one that is withheld from employees. All are reported to the California Employment Development Department (EDD).

1. Unemployment Insurance (UI)

UI is an employer-paid tax that funds unemployment benefits for eligible former employees. Key facts:

• New employer standard rate: 3.4% for the first two to three years.
• Wage base: first $7,000 of wages paid to each employee per calendar year.
• After the initial period, EDD assigns an experience rate based on your UI claims history, ranging from 1.5% to 6.2%.
• Industry: construction employers often start at a higher rate.

2. Employment Training Tax (ETT)

ETT funds job skills training programs. It is also employer-paid:

• Rate: 0.1% (one-tenth of one percent).
• Applied to the same $7,000 wage base as UI.
• Maximum per employee per year: $7.00.
• Not all employers pay ETT, check your EDD rate notice for applicability.

3. State Disability Insurance (SDI)

SDI is employee-paid and funds short-term disability and Paid Family Leave (PFL) benefits.

• Rate: 1.1% of gross wages (2025).
• Wage base: removed effective January 1, 2024, SDI now applies to ALL wages with no cap.
• Employers withhold SDI from employee paychecks and remit to EDD.
• SDI covers up to 60-70% of wages during disability leave (up to 52 weeks).
• PFL (Paid Family Leave) is funded through SDI contributions.

4. PIT Withholding (California Income Tax)

Employers must withhold California Personal Income Tax from employee wages based on the DE 4 form (California's equivalent of the federal W-4).

• Employees complete Form DE 4 to claim withholding allowances.
• If employee does not submit a DE 4, withhold using single status with zero allowances.
• California income tax rates range from 1% to 13.3% (the highest state income tax in the US).
• SDI withheld is reported separately on W-2 Box 14 as 'CASDI'.

Employer Registration with EDD

Before your first payroll, register your business with the California EDD:

• Register online at EDD's e-Services for Business portal.
• Obtain your Employer Account Number (EAN).
• Set up your deposit schedule, determined by your payroll size.
• File quarterly returns using Form DE 9 (Quarterly Contribution Return) and DE 9C (Quarterly Wage and Withholding Report).

Deposit Schedules

Form DE 9, Quarterly Return

DE 9 is due the last day of the month following the close of each quarter:

Pro Tip: Use EDD's e-Services for Business to file DE 9/DE 9C electronically, mandatory for employers with 10+ employees.

Common California Payroll Mistakes

• Using the wrong UI rate, always check your annual EDD rate notice.
• Not removing the SDI wage cap, since 2024, all wages are subject to SDI.
• Missing the DE 9C wage detail, EDD matches wages to individual SSNs.
• Incorrect PIT withholding because employees did not update DE 4.
• Late deposits, California penalties are steep (5% for first 15 days, more after).

Frequently Asked Questions

Written by

Anu Gupta, CA, EA, B.Tech

Anu works with US businesses on tax and entity questions at Profitjets, from choosing a structure to the filings that follow it. She writes about the decisions owners make once and then live with for years. Connect on LinkedIn