• by admin
• March 29, 2022

Before hiring an employee in CA, the employer needs to register with the state for 1. Employer Withholding Tax Licensure, and 2. Unemployment Tax Licensure.

The employee must sign and submit to the employer the federal Form W-4 and the state DE 4. The W-4 is used for federal income tax withholding calculation, and the DE 4 is used for California Personal Income Tax (PIT) withholding calculation.

The state of CA has the following four payroll taxes, of which two are contributed by the employer, and the other two are paid by the employee to the state.

In CA, the employer contributes for the following:

 

1. Unemployment Insurance (UI)/Employer pays – This is a national unemployment insurance program that is administered by the US Department of Labor according to the Social Security Act. If an employee is unemployed with no fault at his/her end can apply for the temporary payment. The employers who are new usually pay 3.4% of taxable wages in first 2-3 years. In these period the taxable wages is limited to $7,000 per employee per calendar year for UI purposes. After 2-3 years the Employment Development Department of California notifies the employer the UI rate and taxable wages every year based on the experience of the temporary payments made to the employees.
2. Employment Training Tax (ETT)/Employer pays – This is an employer-paid tax that funds employee training at the targeted industries. This helps CA businesses to become more competitive in the marketplace by promoting a healthy labor market, investing in a skilled and productive workforce, and developing the worker’s skills. The employer pays 0.1% of the first $7,000 of the annual wages of the employee.
3. State Disability Insurance (SDI)/Employee pays – This program provides temporary benefits to an employee for non-work-related illness or injury, or pregnancy. This program also extended to fund Paid Family Leave (PFL) for people who can not work because they need to provide care for a seriously ill family member or bond with a new child or participate with a military family member in qualifying events. The employer deducts 1.1% of the wages paid to the employee in a year when the wages of the employee is $146,600 or less. The maximum deduction limit for each employee is $1,601.60.
4. Personal Income Tax (PIT)/Employee pays – CA has a state-level income tax that imposes a tax on income for residents or non-residents generating income within the state of CA. The program is administered by the California Franchise Tax Board (FTB). The rate of withholding is based on the Employee’s Withholding Allowance Certificate (Form W-4 or DE 4) submitted by the employee to their employer.

 

CA offers the two withholding schedules

• Wage bracket table method
• Exact calculation method

 

Vacation

CA law does not require an employer to pay any minimum vacation. It is up to the employer and depends on the employer’s vacation policy. All payments made to the employee during vacation or in lieu of vacation are considered wages and subject to payroll tax and withholding requirements.

 

Sick pay

An employee who works in CA for 30 or above days within a year is entitled to sick pay and will earn at least 1 hour of sick paid leave for every 30 hours worked unless the employee is covered by qualifying collective bargaining agreements or certain employees of airlines are not covered by this law.

 

Workers’ Compensation Insurance

An employer needs to get coverage for workers’ compensation insurance to cover injuries or illnesses suffered on the job. The employee who has suffered work-related illness or injury and he/she needs major medical attention needs to report to his employer in writing within 30 days.

 

Filing requirements

• Report new employee – DE-34
• Report independent contractor – DE 542
• Quarterly contribution return and report of wages – DE 9
• Quarterly contribution return and report of wages – DE 9C
• Payroll tax deposit – DE 88/DE 88ALL

 

RKB Accounting has expertise in cross-border taxation and has been providing accounting and taxation services for the last fifteen years in Canada and USA. RKB services include incorporating a business on both sides of the border, bookkeeping, sales tax, payroll, and corporate and personal income tax. RKB’s expertise includes cross-border tax planning, long-term tax planning, helping business start-ups, business structure planning, and resolving complex tax matters.

Disclaimer: Information in the blog/post/article has been presented for a broad and simple understanding. This is not legal advice. RKB Accounting & Tax Services does not accept any liability for its application in any real situations. You need to contact your accountant or us for further information.

 

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