Everything employers need to know about paying California unemployment insurance taxes.
If your small company employs people in California, you must pay the California unemployment insurance (UI) levy. The UI tax pays for unemployment insurance programs for qualifying workers. In California, the state unemployment insurance levy is simply one of numerous taxes that companies must pay. Other major employer taxes not mentioned here include the federal unemployment insurance tax, as well as state and federal withholding taxes.
Varied states have different UI tax policies and rates. Here are the fundamentals of California’s UI tax.
In addition to the UI tax, California levies an employment training tax, or ETT, which is not discussed here. Furthermore, unlike other states, California often combines together UI tax, ETT, withholding taxes, and other employer taxes and utilizes the same forms for all of them. All of these taxes are referred to as “payroll taxes” in California.
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Become a member of the Employment Development Department.
Your small company, as a California employer liable to UI tax, must open a California payroll tax account with the California Employment Development Department (EDD). You do not need to open an account until you have paid more than $100 in salaries in a calendar quarter.
You open an account by registering your company with the EDD, either online or on paper. Use the EDD’s e-Services for Business to register online. You should get an account number within 24 hours if you register online. Most employers should use Form DE 1, Registration Form for Commercial Employers, to register on paper. (Other employers, such as agricultural employers, home worker employers, and nonprofit employers, must use alternative registration forms.) Blank forms may be downloaded from the EDD website’s Payroll Taxes Forms and Publications area. Form DE 1 may be sent through conventional mail or fax. If you register on paper, you should have your account number within 10 days. There is no cost to register your company with the EDD.
You will need a federal employer identification number to set up your California UI tax account (EIN). You may get an EIN by visiting IRS.gov. In most cases, if you apply online, you will obtain your EIN very instantly.
UI Tax Liability Regulations
In California, you must pay UI taxes if you earn more than $100 in a calendar year. This is in contrast to many other states, which follow federal standards for UI tax responsibility under the Federal Unemployment Tax Act (FUTA) or laws that are fairly similar. Employers are not responsible for UI tax under federal laws unless they either:
pay at least $1,500 in compensation in any calendar quarter, or employ one or more people in each of the twenty calendar weeks.
Different restrictions apply to agricultural laborers, domestic (in-home) workers, and employees of certain (but not all) non-profit organizations, which are not included here.
Wage Structure and Tax Rates
The state UI tax is levied on each employee’s salary up to a certain yearly limit. This level, known as the taxable pay limit in California (other jurisdictions use the phrase “taxable wage base”), has lately remained steady at $7,000. However, that figure is subject to change.
The state UI tax rate for new employers, termed as the standard commencing tax rate in certain states and nationally, may likewise vary from year to year. In recent years, it has hovered around 3.4% in California. The rate of a new employer is normally fixed for at least the first two or three years. Based on a “experience rating,” established employers are liable to a lower or higher rate than new firms. This includes, among other things, whether your company has ever had workers file claims for state unemployment benefits.
Submit UI Tax Reports and Payments Quarterly
UI tax filings and payments are bundled with other payroll tax reports and payments in California. Returns and payments are typically due one month after the end of each calendar quarter. In other words, they must be submitted by the following dates:
Returns and payments for the first quarter are due on or before April 30.
Returns and payments for the second quarter are due on or before July 31.
Third-quarter returns and payments are due by October 31, and fourth-quarter returns and payments are due by January 31.
When a due date occurs on a Saturday, Sunday, or legal holiday, the deadline is moved to the next business day. (Unlike UI tax payments, withholding tax payments may be required more often than quarterly.)
Unless payments are made by Electronic Funds Transfer (EFT) or credit card utilizing e-Services for Business, all tax payments must be accompanied by a completed Payroll Tax Deposit (DE 88/DE 88ALL). About six weeks after registering with the EDD, newly registered employers get a DE 88 booklet containing preprinted coupons. Newly registered employers may enroll in and utilize e-Services for Business to make deposits right away.
You must additionally submit a Quarterly Contribution Return and Report of Wages (DE 9) and Quarterly Contribution Return and Report of Wages (Continuation) in addition to a DE 88 to make a payment (DE 9C). Larger companies are obliged to electronically submit these documents. Other employers have the option of filing online or via normal mail. Use the EDD’s e-Services for Business to file electronically. Send both forms together if filing by mail, and do not include any payroll tax deposit (Form DE 88). Blank forms may be downloaded from the EDD website’s forms and publications area.
File Even If No Wages Have Been Paid
Even if you did not pay any salaries during the quarter, you are still considered an employer and must submit the DE 9 and DE 9C. Sign and send both reports after checking the “No Payroll” box in Item A on the DE 9 and Item C on the DE 9C. If you do not anticipate to pay salaries within the next year, you must tell EDD in writing or by ticking the “Out of Business/Final Report” box on the DE 9 and DE 9C. They will send you a letter confirming the deactivation of your account.
Make a Public Notice (Poster)
After registering with EDD, employers get a notice to display informing their workers of their rights under the Unemployment Insurance (UI), Disability Insurance (DI), and Paid Family Leave (PFL) programs. This notification must be displayed in a conspicuous position where workers may readily see it. From the Required Notices and Pamphlets part of the EDD website, you may obtain a form that fits the legal requirements for the notification.
Employees should not be misclassified as independent contractors.
Employers that hire independent contractors rather than employees are exempt from the UI tax. It is critical, however, that you should not misclassify an employee as an independent contractor. If you misclassify an employee, you may face penalties or fines.
Using Payroll Service Providers
You may decide that it is easier to delegate payroll obligations, including UI taxes, to an outside payroll agency. If this is the case, bear in mind that your company, or even you personally, may be held directly liable for errors made by an outside payroll firm.