Published on: December 30, 2019

Calculating Payroll Taxes in California (And 4 Types of Deductions)

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    Calculating California payroll taxes can be quite a task. It can be tough to ensure payroll taxes are accurately calculated.

    In the state of California, there’s a particular method used to ensure you analyze your taxes efficiently. Let’s take a look into it…

    california payroll taxes

    How are California Payroll Taxes Calculated?

    Most people in California are paid by an hourly wage (for lower-end jobs) or by a yearly salary (for more prestigious jobs). If you’re escaping this system, you’re probably engaged in some dodgy, back-door, cash-in-hand exchanges. This is not advisable!

    Despite this back-door example, your actual take-home pay will be less than your salary listed in your job contract.

    Why is that?

    A couple of factors come into play here. For instance, tax contributions and how much you opt to put aside into a retirement fund. Either way, this is all handled and calculated by a team called Payroll. 

    Calculating payroll taxes may be done in a different order in other states or countries. However, when calculating Californian payroll taxes, the first thing to consider and remove from your salary is your Medicare and Social Security, which are known as FICA taxes.

    Social Security tax removes roughly 6.2% of cash from your salary, and a slightly lower 1.45% is deducted for Medicare.

    This amount can depend on your wage too. For example, if you’re taking home more than $200,000 at the end of the year, you’ll be lumbered with a further charge of 0.9% to cover a Medicare Surtax.

    It’s also worth noting, if you’re self-employed state laws require you to pay a whole new tax. Despite the Medicare and Social Security taxes, you must also have to pay a little bit more than 15%, which covers both employer and employee taxes.

    Business Tax california payroll taxes

    Other Deductions

    There are additional fees that, by the end of the month, may make your wallet feel even lighter. Yes, these things affect Californians, but they also often affect other Americans as a whole.

    For instance, lots of companies also provide extra benefits that can come out of your account (voluntarily) as a sort of “extra contribution.” For example, they may offer an additional health insurance plan, which you’ll pay for via an automatic deduction from your salary. 

    Your bank account will not even get the slightest whiff of this money because your company will tax it from you before you even smell it.

    Apart from this, according to the State of California’s Employment Development Departments, there a four different types of taxes that must be paid by Californian Citizens. This includes the following:

    Business Tax california payroll taxes

    1. Unemployment Tax

    This form of tax is for the employer. When the employer gets new staff, and when each of these new hires earns their first $700 working for the company, the employer must pay a varying percentage.

    Additionally, between the first two or three years, these employers are going to have to pay a tax of roughly 3.4%, a figure which will steadily increase over the years.

    The only positive thing for these employers is that there’s a cap on this rate. Once they’re paying 6.3% on tax for these employees, there’s no further increase in tax.

    Business Tax california payroll taxes

    2. Employment Training Tax

    Employment Training Tax is something specific to California, and it’s a system they use to pay for their labor force whenever they’re looking to expand.

    Within their first year of business, every employer is subject to paying a fee to California Payroll, and with a Positive UI, they continue to pay it back even after this first year.

    Never fear, this tax doesn’t create a massive hole in the pocket of businesspeople. It’s around 0.9%, and just like with the unemployment tax, it’s based on the reception of your first $7,000. It works out at about $7 for each employee per year.

    Business Tax california payroll taxes

    3. State Disability Tax

    This form of California payroll taxes focuses on supporting employees with specific disabilities or handicaps. If the employee has a condition preventing them from enjoying equal opportunities to other able-bodied staff, this is where this tax comes into play. It works wonders for helping disabled employees secure the same opportunities as the others.

    This tax fee is set at 0.9%, and employers aren’t liable to pay this tax. It’s the employees who are subject to this payment. However, employers must reserve it from their paychecks.

    Business Tax california payroll taxes

    4. California Personal Income Tax

    These California payroll taxes also aren’t paid by employers, but by employees. This type of charge differs quite dramatically from person to person and is dependent on what they earn.

    This once again is unique to California in the sense that employees will fill out a W-4 or DE 4 form that has no maximum or minimum tax amount.

    Furthermore, the California Personal Income Tax is unique because it’s calculated based on the average income of Californian residents and non-residents whose income comes from California.

    Systems such as the EDD and FTB put together also play crucial roles in this area, and help fund things like schools, parks, roads, health, and emergency services.

    Want More Info?

    Dealing with and calculating California payroll taxes can be quite a complicated thing. As such, it usually requires a second opinion, namely, because there are so many factors to take into account.

    It’s imperative that this is calculated correctly. If you’re an employee in California, you need to be paid what you’re entitled to — that goes without saying! And if you’re an employer, you’ll want to ensure you’re collecting all the tax payable to you.

    For more info on this, please feel free to contact us. Our helpful team is always more than happy to answer any and all of your questions. Speak soon!

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