Overview
California is one of the most complex states for payroll taxes. With a progressive income tax reaching up to 13.3%, mandatory employee-paid State Disability Insurance (SDI), employer-paid SUTA and Employment Training Tax (ETT), and unique supplemental wage rules, there’s a lot for employers to manage.
State Income Tax (SIT)
California imposes a progressive state income tax on wages earned by both residents and nonresidents working in the state. Tax rates range from 1.0% to 13.3%, making it one of the highest state income tax rates in the country. Withholding is calculated based on the employee’s filing status, allowances, and additional withholding instructions from their DE 4 form.
| Tax Structure | Progressive (1.0% to 13.3%) |
| State Withholding Form | DE 4 |
| SDI | Employee-paid; rate and wage ceiling set annually by EDD |
| SUTA Rate | 3.4% default for new employers |
| ETT | 0.1% employer-paid (exempt if SUTA rate ≥ 6.2%) |
| Supplemental | Two separate flat rates for bonuses vs. commissions |
Supplemental Wages
California supports the following supplemental calculation methods. When using the flat method, the supplemental rate is Two flat rates (bonus vs. commission).
Employer State Unemployment Tax (SUTA)
Your assigned SUTA rate will be based on your company’s experience with unemployment claims. New employers typically start at the default rate of 3.4%.
| Tax Type | Employer-paid only |
| Default New Employer Rate | 3.4% |
| Rate Assignment | Experience-rated; assigned annually by the state |
| Rate Assignment | Experience-rated; assigned annually by the state |
| SUTA Surcharges | ETT (Employment Training Tax) at 0.1% |
Other Taxes & Obligations
State Disability Insurance (SDI): California requires contributions to a disability insurance program. This provides short-term benefit payments to eligible workers who suffer a loss of wages due to non-work-related illness, injury, or pregnancy. Check with the state for current rates and wage base limits.
Disclaimer: This content is provided for general informational purposes only and does not constitute legal, tax, or accounting advice. Netchex does not provide tax or legal guidance and makes no representations regarding the accuracy or applicability of this information. Laws and regulations may change. The information on this page reflects payroll tax guidelines as of March 2026. For the most current requirements, please refer to:
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