California payroll taxes come in four parts, and only two of them cost the employer money. You pay Unemployment Insurance, 3.4 percent for new employers on the first $7,000 per employee. You also pay the Employment Training Tax, 0.1 percent on the same $7,000. Employees fund State Disability Insurance (1.3 percent of all wages in 2026) and state income tax through withholding. Everything runs through the EDD.
This guide is for Los Angeles employers who want a plain answer. What do you actually pay, what do you only pass through, when is it due, and how should it look in the books? Every rate below comes from the EDD’s 2026 pages, checked on September 23, 2026. We reconcile these numbers to payroll reports for clients every month at Books LA. So we also cover the mistakes we see most.
The four California payroll taxes
| Tax | Who pays | 2026 rate | Wage limit |
|---|---|---|---|
| Unemployment Insurance (UI) | Employer | 3.4% for new employers; 1.5% to 6.2% once experience-rated | First $7,000 per employee per year |
| Employment Training Tax (ETT) | Employer | 0.1% | First $7,000 per employee per year |
| State Disability Insurance (SDI) | Employee, withheld | 1.3% | None since 2024; all wages |
| Personal Income Tax (PIT) | Employee, withheld | Per the employee’s DE 4 and EDD tables | None |
Source: the EDD’s 2026 rates and withholding page. The UI figure is the one owners underestimate at first and overestimate later. At 3.4 percent on $7,000, a new employer’s UI tops out at $238 per employee per year. Add $7 of ETT. Once the EDD assigns you an experience rate, the range runs from 1.5 to 6.2 percent. Layoffs push it up.
What California payroll taxes cost the employer
Add the two employer taxes together and a new employer pays about $245 per employee per year in state payroll tax. For anyone earning over $7,000, all of it lands in the first months of the year. That is the state side only. Federal Social Security and Medicare, the employer’s 7.65 percent, and federal unemployment are separate and larger. So when a payroll provider quotes “employer taxes” as a percentage of wages, most of it is federal. The California piece front-loads into the first quarter.
The two withheld taxes cost the employer nothing. However, they create the liabilities that get businesses in trouble. SDI takes 1.3 percent of every dollar of wages, with no cap. PIT follows the employee’s DE 4. Both come out of paychecks and sit with you until the deposit is due. Held money is easy to spend. That is the bookkeeping problem this post is really about.
Registering, reporting, and filing with the EDD
- Register. Once you pay wages, you register with the EDD, receive an employer account number, and get a deposit schedule. Registration and every filing after it are electronic. The EDD requires e-file and e-pay unless you hold a waiver.
- Report new hires. You report every new or rehired employee to the New Employee Registry within 20 days of the start date, per the EDD’s required filings page.
- Deposit. Your PIT and SDI deposit schedule follows your federal schedule. Quarterly depositors who accumulate $350 or more of PIT in a pay period move to monthly deposits. Next-day or semiweekly federal depositors follow those timelines for California too.
- File quarterly. You file the DE 9 (contribution return) and DE 9C (wage report) every quarter. They are due at the end of the month after the quarter closes. Late payments carry a 15 percent penalty plus interest. Each employee missing from a DE 9C costs $20 plus interest.
Most Los Angeles employers run all of this through a payroll provider such as Gusto or QuickBooks Payroll. That is sensible. However, the provider files on your behalf using your account. The books still have to prove that the withheld money went out as deposits.
How the four taxes should look in your books
This is where we see the most errors. Payroll software posts entries automatically and nobody checks them. The correct picture is simple.
- Gross wages are the expense. Not net pay. The full salary or hourly total goes to wages expense.
- Employer taxes are a second expense. UI and ETT, plus the federal employer taxes, post to payroll tax expense.
- Withheld amounts are liabilities. SDI, PIT, and the employee’s federal withholding sit in payroll liabilities from payday until the deposit clears the bank. They are never an expense.
- Deposits clear the liabilities. When the EDD payment leaves the bank, it reduces the liability, not the expense. If the liability account keeps growing, someone missed or miscoded a deposit.
- Tie out every quarter. The DE 9 totals should equal the quarter’s wages and liabilities in the books, to the dollar. We do this before the return is filed, not after.
Our post on the monthly bookkeeping close shows where the payroll tie-out sits in the routine, and the restaurant bookkeeping guide covers tips, which flow through the same accounts.
Three mistakes we correct most often
- Coding the EDD payment to expense. The deposit includes withheld PIT and SDI, which were never your cost. Booking the whole payment as tax expense overstates expenses and leaves a phantom liability.
- Missing the UI wage cap. UI and ETT stop at $7,000 per employee. Software handles it. Manual payroll and mid-year provider switches often do not, so the second provider starts the cap over.
- Treating contractors as exempt from everything. Payments to a genuine contractor carry no payroll tax. California’s worker classification rules, however, are strict. Get the classification right before payroll starts. Confirm anything close with your CPA or an employment attorney.
The Los Angeles layer
State payroll tax is the same across California, but LA adds its own items to the calendar. The city and county minimum wages exceed the state rate and change each July. That changes gross wages, and therefore SDI and PIT. Multi-city businesses on the Westside track which city each employee works in, because local minimum wage and sick leave rules differ. None of that changes the EDD math. All of it changes the wages the math runs on.
How Books LA handles this
We coordinate payroll with the client’s provider and post each payroll so gross wages, employer taxes, and withheld liabilities land in the right accounts. Then we reconcile the EDD deposits and the quarterly DE 9 to the books before filing. If the liabilities do not tie, we find out in the month it happened. Our monthly packages include payroll coordination at the levels that need it.
Frequently asked questions
How much does an employer pay in payroll taxes in California?
On the state side, a new employer pays 3.4 percent UI plus 0.1 percent ETT on the first $7,000 of each employee’s wages. That is about $245 per employee per year. Experience-rated employers pay UI between 1.5 and 6.2 percent. Federal Social Security, Medicare, and unemployment taxes are additional.
Is SDI paid by the employer or the employee?
The employee. You withhold SDI from wages at 1.3 percent in 2026, with no wage limit since 2024. The employer collects it and deposits it to the EDD, but it is not an employer cost.
When are California payroll taxes due?
Deposits of withheld PIT and SDI follow your federal deposit schedule. A monthly requirement kicks in once $350 or more of PIT accumulates in a pay period. The quarterly DE 9 and DE 9C returns are due at the end of the month following each quarter. Weekend and holiday due dates roll to the next business day.
Do I have to register with the EDD if I only have one employee?
Yes. Paying wages makes you an employer for EDD purposes. Registration, new-hire reporting within 20 days, and quarterly filing all apply. A payroll provider can handle the filings. The account and the responsibility stay yours.
What is the Employment Training Tax?
A small employer-paid tax of 0.1 percent on the first $7,000 of each employee’s wages. It funds California workforce training programs. It is billed alongside UI and shows up on the same DE 9.
Why does my UI rate change every year?
After the new-employer period, the EDD assigns an experience rate. It depends on your history of unemployment claims and the state’s rate schedule. More claims charged to your account push the rate toward 6.2 percent; a clean history moves it toward 1.5 percent.
What happens if a payroll tax deposit is late?
The EDD charges a 15 percent penalty plus interest on late payments. Unreported employees on the DE 9C cost $20 each plus interest. Because the withheld portion was employee money, late deposits also draw extra scrutiny.
If your payroll liabilities have never been tied to your EDD filings, book a short call and we will check last quarter with you.
This post is general information, checked against EDD publications in September 2026. Rates and schedules change, so confirm yours on the EDD site or with your payroll provider. Books LA provides bookkeeping services and does not advise on income tax. Worker classification and income tax questions belong with your CPA or attorney.
