Overview: California payroll taxes in 2026
Running payroll in California means navigating one of the most complex state-level tax environments in the US. Unlike simpler states, California imposes five separate payroll-related taxes — three from employees and two employer-only — on top of all federal obligations. Getting them wrong can mean penalties from both the EDD and the FTB.
The five California payroll taxes are: Personal Income Tax (PIT) withheld from employee wages, State Disability Insurance (SDI) employee-paid, Unemployment Insurance (UI/SUTA) employer-paid, Employment Training Tax (ETT) employer-paid, and the SDI employer contribution (which California does not require — SDI is entirely employee-funded). This guide breaks down every rate, taxable wage base, and filing requirement you need for 2026.
1.0% – 12.3% (+1% on $1M+)
1.1% on all wages, no cap
3.4% new employer, first $7,000
0.1% on first $7,000
California state income tax brackets 2026
California uses a progressive income tax with ten brackets, sourced from the California Franchise Tax Board (FTB). Below are the 2026 brackets for single filers. Married Filing Jointly thresholds are roughly double.
Unlike federal income tax, California withholding is calculated using the Exact Calculation Method or the Wage Bracket Method from the EDD's Withholding Schedules (DE 4P). Employers must withhold based on the employee's Form DE 4 (California Withholding Certificate), which is equivalent to the federal W-4. If a new California employee does not submit a DE 4, the employer defaults to Single filing status with zero withholding allowances — a common source of under-withholding for employees.
California SDI: State Disability Insurance 2026
California SDI is an employee-paid payroll deduction that funds the state's disability benefit program. The 2026 rate is 1.1% on 100% of wages with no annual wage cap. This is administered by the California Employment Development Department (EDD).
The removal of the SDI wage cap was enacted under SB 951, effective January 1, 2024. Before 2024, SDI had an annual taxable wage ceiling (it was $153,164 in 2023 at 0.9%). Now a California employee earning $300,000 pays $3,300 per year in SDI. An employee earning $600,000 pays $6,600 — with no limit.
SDI quick facts 2026
- Rate: 1.1% on all gross wages
- Wage cap: None (eliminated Jan 2024 under SB 951)
- Who pays: Employee only — no employer match
- Covers: Short-term disability and California Paid Family Leave (PFL)
- Reported on: Box 14 of Form W-2, labeled "CASDI" or "SDI"
SDI is deductible on the employee's California state tax return as a state tax payment. However, it is not deductible as state income tax on a federal return (since the IRS views it as a disability insurance premium, not a tax). Employers who voluntarily establish an approved Voluntary Plan (VP) instead of the state SDI can provide equivalent or better benefits — about 500 California employers use this route.
California employer payroll taxes: ETT and SUTA
California employers pay two state-level employer taxes in addition to their federal FUTA obligation.
Unemployment Insurance (UI / SUTA)
New California employers pay 3.4% on the first $7,000 of each employee's wages during the first two to three years of operation — a maximum cost of $238 per employee per year. This rate is fixed for new employers until the EDD assigns an experience-rated rate based on your actual unemployment claims.
After the new employer period, rates are recalculated annually and range from 1.5% to 6.2% depending on your claims history and industry. High-claims employers in certain industries can pay as much as 6.2% — nearly double the new employer rate.
Employment Training Tax (ETT)
The ETT rate is 0.1% on the first $7,000 of each employee's wages — capped at $7.00 per employee per year. This is one of California's smallest payroll obligations, but it must still be calculated and remitted. ETT funds workforce training programs administered by the EDD.
Note: Not all employers pay ETT. Employers subject to UI are automatically subject to ETT, but some industries (household employees, certain agricultural workers) may have different obligations.
For a new employer with a $50,000/year employee: UI (3.4% × $7,000) = $238 + ETT (0.1% × $7,000) = $7 + FUTA net (0.6% × $7,000) = $42. California-only state taxes: $245 per employee in the new employer period (plus federal obligations).
California overtime rules: daily overtime that federal law ignores
California has significantly stricter overtime rules than federal FLSA. Under California Labor Code Section 510 and enforced by the Division of Labor Standards Enforcement (DLSE), overtime is triggered by daily hours worked — not just weekly hours. Federal law only requires overtime for hours over 40 in a workweek.
California daily overtime rules (Labor Code § 510)
Hours worked over 40 in a workweek
First 8 hours on the 7th consecutive day of a workweek
All hours on the 7th consecutive day beyond 8 hours
Example: An employee works 10 hours on Monday. Under federal law, no overtime applies (under 40 hrs for the week). Under California law, 2 hours of overtime at 1.5x applies for the hours over 8 in that single day.
California does allow Alternative Workweek Schedules (AWS) where employees can vote to work four 10-hour days without triggering daily overtime on the 9th and 10th hours. However, the AWS election process must follow strict procedures under IWC Wage Orders — including a secret ballot election and documentation filed with the DLSE. An improperly implemented AWS is treated as a standard schedule, exposing the employer to back overtime pay.
9 California payroll facts that differ from federal rules
California routinely creates stricter employee protections than federal law. These nine rules catch California employers off guard more than any others:
Federal FLSA triggers overtime only after 40 weekly hours. California triggers overtime after 8 daily hours. A 12-hour workday at $20/hr costs the employer $240 federally, but $250 under California law (2 OT hours at $30).
No other major US state eliminated its SDI wage cap entirely. High earners in California pay 1.1% on every dollar of wages — making a $500,000/year employee cost $5,500/year in SDI alone.
California requires a 30-minute unpaid meal break for shifts over 5 hours and a 10-minute paid rest break per 4 hours. A missed break requires one additional hour of pay at the regular rate — this is a payroll obligation, not just an HR issue.
California treats unused PTO as accrued wages. Unlike most states, California prohibits "use-it-or-lose-it" PTO policies. All unused PTO must be paid out at termination at the employee's final rate of pay.
California requires immediate final pay (same day) for employees who are discharged or who quit with 72 hours notice. Employees who quit without notice get 72 hours. Late final pay triggers a one-day "waiting time penalty" equal to the daily wage for each day late, up to 30 days.
California's statewide minimum wage is $16.50/hour for most workers in 2026, compared to the federal $7.25. Some cities (Los Angeles, San Francisco, San Jose) set their own higher minimums above the state floor. Overtime calculations must be based on the applicable minimum, not the federal rate.
California's AB5 presumes anyone who performs work for a company is an employee, not an independent contractor, unless you pass a three-part ABC test. Misclassifying a worker as a 1099 contractor subjects the employer to all missed payroll taxes, SDI, and UI contributions, plus penalties.
Federal law allows employers to pay tipped employees $2.13/hour and use tips to make up the difference to minimum wage. California prohibits tip credits entirely — tipped employees must receive the full California minimum wage before any tips.
California Labor Code Section 226 requires nine specific items on every pay stub, including the name and address of the employer, the period the paycheck covers, total hours worked (for non-exempt employees), and the applicable piece-rate or hourly rate. Non-compliant pay stubs carry a $250 penalty per employee per pay period, capped at $4,000 per employee.
Calculate your California payroll taxes
Put these rates to work. Our calculators run CA state income tax, SDI, and all federal obligations instantly — no signup required.
Sources
- California Franchise Tax Board (FTB) — 2026 income tax rates and brackets
- California Employment Development Department (EDD) — SDI rate, UI/SUTA rates, ETT, withholding schedules
- California DLSE (Division of Labor Standards Enforcement) — Overtime rules, Labor Code Section 510, IWC Wage Orders
- California SB 951 (2022) — SDI wage cap elimination, effective January 2024