What payroll taxes do small businesses need to pay?

Payroll Taxes for Small Businesses in California

Small businesses operating in California must manage several payroll taxes to stay compliant and avoid penalties. Understanding these taxes and their operational requirements is essential for smooth payroll processing and accurate bookkeeping.

Key Payroll Taxes to Pay

• Federal Payroll Taxes: Employers must withhold and remit federal income tax, Social Security tax, and Medicare tax from employee wages. Employers also pay a matching amount for Social Security and Medicare taxes.
• California State Income Tax Withholding: Employers must withhold California state income tax from employee wages based on state withholding schedules and remit these amounts to the California Employment Development Department (EDD).
• State Unemployment Insurance (SUI): Employers pay SUI taxes to the EDD to fund unemployment benefits. Rates vary based on the employer’s experience rating and industry.
• Employment Training Tax (ETT): This is a small tax paid by employers to fund training programs for California workers.
• State Disability Insurance (SDI): Employers withhold SDI contributions from employees’ wages to fund disability and paid family leave benefits. This is an employee-paid tax, but employers are responsible for withholding and remitting.

Operational Tips for Managing Payroll Taxes in California

• Register with the EDD: Ensure your business is registered for payroll tax accounts to receive tax rate notices and reporting instructions.
• Use Automated Payroll Systems: Automate tax calculations, withholdings, and filings to reduce errors and save time.
• File Timely Reports: California requires quarterly payroll tax returns and wage reports. Late filings may result in penalties.
• Maintain Accurate Records: Keep detailed payroll records, including tax filings and payments, for at least four years to comply with audits and reporting requirements.
• Stay Updated on Rates: Payroll tax rates and wage limits can change annually. Review EDD updates each year to adjust payroll systems accordingly.

As of 2026, these payroll tax obligations form the core of California payroll compliance for small businesses. Proper management supports smooth payroll operations and helps avoid costly compliance issues.