California Payroll Tax and Registration Guide

Employers in The Golden State, here’s what you need to know about payroll taxes and business registration in California. Business registration and payroll taxes can be complicated. In order to get the best advice you can, enlist the help of a lawyer or a Certified Public Accountant in the State of California to guide you through the process.

Whether you’re a brand-new small business or branching out into California for the first time, here’s how to stay compliant with payroll tax and business registration laws in the state.

California tax account registration information

The first step to registering for a tax account in the State of California is registering your business entity. The California Office of the Small Business Advocate offers guidelines for the process.

1. Choose your business structure. Common business structures include LLC’s, C-Corps, and S-Corps.
2. Register your business with the California Secretary of State.

All businesses operating in the state need to be registered, file required taxes, register as an employer, and get any necessary business licenses or permits from the state, local counties, and cities. California’s Employment Development Department offers e-services for registering for tax accounts, registering a commercial employer account, and more.

Required payroll documentation for California

All businesses in the State of California are required to file state income taxes with the Franchise Tax Board.

Withholding information

In general, businesses in California must pay state payroll taxes when paying more than $100 in wages within a calendar quarter to one or more employees. Wages are considered to be compensation for services performed and include cash payments, commissions, bonuses, and the reasonable value of noncash payments like meals and lodging in exchange for services.

Employers have to register with the State of California’s Employment Development Department within 15 days of becoming an employer that meets the state’s payroll tax requirements.

In California, employers are responsible for withholding unemployment insurance. This is 6.2% on the first $7,000 in wages paid to employees each calendar year. New employers pay 3.4% for the first two or three years. Businesses are notified of their new unemployment insurance rates each December.

Employers must also withhold employment training tax. This is levied at a rate of 0.1% on the first $7,000 of wages paid to each employee per calendar year. This tax maxes out at $7 per employee per year.

California employers also withhold state disability tax at a rate of 0.9% on annual income up to $153,164 per year. This maxes out at $1,378.48 per employee. Employers also withhold personal income tax on both employees who are California residents as well as non-residents who work in California. There is no maximum amount for this tax which is calculated based on each employee’s W-4 or DE 4 form.

Power of Attorney rules for California Payroll Tax and Registration

California businesses can use form DE 48 to declare power of attorney that lets an individual or an entity act on your business’s behalf for tax and benefit reporting matters. Power of attorney filings remain in effect until they are revoked.

Local income taxes imposed for California

California has the highest top marginal income tax in the U.S. The state uses a progressive tax—the more money an employee makes, the higher their income tax rate will be. State income tax ranges from 1% to 13.3%. Many local counties and cities levy additional taxes. San Francisco residents as well as non-residents who work in the city pay an additional 1.5% tax on earned income.

California resources for Payroll Tax and Registration Laws

The State of California Employment Development Department and the Franchise Tax Board are the entities you’ll work with to register your business and learn about and pay payroll taxes and more.

This website provides general information related to TriNet Zenefits services and related laws and best practices. This content and TriNet Zenefits employees do not provide legal advice. While we strive to provide useful general information applicable to the majority of our readers, we do not — and cannot — provide legal advice specific to your company and your situation. Already a TriNet Zenefits customer? Enjoy on-demand HR Advisory Services for all your HR and compliance questions. If not, learn more here.