California Payroll Taxes and Withholding Guide (2026)

What Makes California Payroll Different

Federal payroll tax is the same in every state. What changes from one state to the next is the second layer: state income tax withholding, state-run disability or family leave programs, and employer-side unemployment taxes. California has one of the most involved second layers in the country.

Three California-specific items drive most of the confusion. First, California income tax withholding is set by a separate state form, the DE 4, because the redesigned federal Form W-4 no longer uses allowances. Second, California runs its own State Disability Insurance program, funded by a mandatory employee deduction that many workers mistake for a state income tax. Third, California uses two flat supplemental rates for bonuses and stock options that differ from the federal supplemental rate. Each of these is covered in detail below, with the federal baseline explained in the how payroll taxes work guide.

Employee Withholding Overview in California

A California employee sees more lines on a pay stub than a worker in a no-income-tax state. The deductions fall into three groups: federal taxes, California income tax, and California State Disability Insurance.

The federal lines work identically to any other state. For Social Security, the 2026 wage base is $184,500, after which Social Security stops for the year. Medicare has no cap. What is unique to California is the PIT withholding line and the SDI line, both administered by California agencies.

How Is California State Income Tax Withheld?

California Personal Income Tax (PIT) is graduated. For state filing, marginal rates run from 1% to 12.3%, with an additional 1% Mental Health Services Tax, now called the Behavioral Health Services Tax, on taxable income above $1 million. That produces a top marginal rate of 13.3%, the highest state income tax rate in the country.

The exact amount withheld from each paycheck is not a flat percentage. The California Employment Development Department (EDD) publishes two methods that employers use to convert the DE 4 elections, pay frequency, and wages into a per-period withholding amount: Method A, the wage bracket table method, and Method B, the exact calculation method. Both are updated annually and are linked in the Sources section.

The DE 4 Form

California employees complete the Employee's Withholding Allowance Certificate (DE 4) for state withholding, in addition to the federal Form W-4. Since 2020 the federal W-4 no longer uses allowances, so California requires the separate DE 4 to set the state amount. If an employee does not submit a properly completed DE 4, the employer must withhold California income tax as if the worker were single claiming zero allowances. Federal withholding mechanics are covered in the W-4 withholding explained guide.

California State Disability Insurance (SDI)

SDI is the deduction California workers most often misread as a second state income tax. It is not income tax. State Disability Insurance is an employee-paid program that funds short-term Disability Insurance and Paid Family Leave benefits, administered by the EDD.

For 2026 the SDI withholding rate is 1.3% of wages. Effective January 1, 2024, all wages are subject to SDI, so the prior annual wage cap no longer applies. A higher earner now pays 1.3% on their full salary rather than stopping at a cap partway through the year. SDI appears as a distinct line on the pay stub, separate from California PIT, and is referenced in the understanding payroll deductions guide.

Employer Payroll Obligations in California

California employers carry both the federal employer taxes and two state employer taxes. The federal side, covered in the employer payroll tax obligations guide, includes the matching 6.2% Social Security and 1.45% Medicare plus Federal Unemployment Tax (FUTA). On top of that, California adds Unemployment Insurance and the Employment Training Tax.

For 2026 the UI rate schedule is Schedule F+, which provides contribution rates from 1.5% to 6.2%. New employers are assigned a 3.4% UI rate for two to three years before moving to an experience-based rate. ETT is set at 0.1%. Both UI and ETT apply only to the first $7,000 of each employee's wages per year. These are employer costs only and do not appear on an employee pay stub. The combined cost-to-hire can be modeled with the employer payroll tax calculator.

California Supplemental Wage Withholding

Supplemental wages are payments outside regular salary: bonuses, commissions, overtime, sales awards, and back pay. When California supplemental wages are paid separately from regular wages, the employer can withhold California PIT at a flat rate rather than running them through the regular schedules.

• Bonuses, commissions, and most other supplemental wages: flat 6.6% for California PIT.
• Stock options and bonuses: flat 10.23% for California PIT.

These flat rates apply only to California income tax. Federal income tax withholding, Social Security, Medicare, and California SDI still apply to supplemental wages under their own rules. The federal supplemental withholding rate is separate and is set by the IRS.

Does California Have a Local Payroll Tax?

No. California does not impose a local or city income tax that is withheld from employee paychecks. This is a meaningful difference from states such as Pennsylvania, Ohio, and New York, where workers see a separate local income tax line. A California employee's wage withholding stops at the state level.

There is one nuance for employers. Some California cities, most notably San Francisco, levy business taxes that are tied to payroll or gross receipts. Those are employer-level business taxes paid by the company, not amounts withheld from employee wages. An employee in San Francisco does not have a local income tax deducted from their paycheck.

California Filing and Payment Frequency

California employers report and deposit state payroll taxes to the EDD. The deposit timing for withheld California PIT and SDI generally follows the employer's federal deposit schedule and the amount of PIT withheld, remitted using the Payroll Tax Deposit (DE 88). The federal deposit schedule itself is covered in the payroll tax deadlines guide.

Quarterly, California employers file the Quarterly Contribution Return and Report of Wages (DE 9) and the wage detail continuation (DE 9C), generally due the last day of the month following the end of each quarter. New employees must also be reported to the EDD New Employee Registry on Form DE 34, consistent with the new-hire reporting timeframe. Full procedures are published in the California Employer's Guide (DE 44) linked in the Sources section.

How Take-Home Pay Works in California

The calculation sequence runs from gross pay down to net pay. Pre-tax deductions reduce the income tax base but not the Social Security, Medicare, or SDI base, which are calculated on gross wages.

1. Start with gross wages for the pay period.
2. Subtract any pre-tax deductions (401(k), Section 125 health premiums) to find taxable wages for income tax.
3. Apply federal income tax withholding using the Form W-4 and IRS Publication 15-T.
4. Apply California PIT withholding using the DE 4 and the EDD Method A or B schedule.
5. Subtract Social Security (6.2%) and Medicare (1.45%) on gross wages.
6. Subtract California SDI at 1.3% on gross wages.
7. The remainder is net pay. California has no local income tax line.

To see exact figures for a specific salary, filing status, and pay frequency, use the paycheck calculator or the take-home pay calculator for a full pre-tax benefits stack.

What California Employees Should Check on a Pay Stub

• CA PIT line: Confirm California income tax is being withheld and that it reflects your DE 4 elections, not just the federal W-4.
• CA SDI line: Verify the SDI deduction is present at 1.3% of gross wages for 2026. It is separate from income tax.
• No local tax line: A California stub should not show a separate city or local income tax deduction.
• Social Security cap: Late in the year, Social Security should stop once year-to-date wages reach $184,500.
• Gross vs. taxable wages: Pre-tax 401(k) or health premiums should reduce the income tax base but not the FICA or SDI base.

What California Employers Should Verify Before Running Payroll

• State registration: Confirm an active EDD employer account and the assigned UI rate on the Notice of Contribution Rates (DE 2088).
• DE 4 on file: Collect a completed DE 4 for each employee, defaulting to single with zero allowances if none is provided.
• SDI rate set correctly: Confirm the 2026 SDI rate of 1.3% with no wage cap is loaded in the payroll system.
• Supplemental rates: Confirm 6.6% and 10.23% flat rates are applied correctly to separate supplemental payments.
• New hire reporting: File the DE 34 New Employee Registry report for each new worker.

California Payroll Quick Facts (2026)

Frequently Asked Questions