Payroll Taxes in California
All the money up to the last dollar taken out of a worker's paycheck is used to pay for the worker's costs or fund the common services given to Californians. The four payroll taxes collected by the state from an employer increase the dollars saved for giving to those in need of a little money, or a little help.
Employers turn the money earned by workers into government money guaranteed for use by Californians.
1. Income Tax.
The tax on income pays for the government's service bills. California residents pay the tax on their income earned at work and earned on savings and investments. Residents from other states also pay the tax on income that is made in California. The Franchise Tax Board and the Employment Development Department bring in the large percentages of workers' incomes so the Governor has the money to pay for state services. A short list of the most commonly used services includes, schools, parks, roads, and health services. Welfare and other social services also get income tax money.
The income tax rate depends on both the total amount of wages earned and other earned income and the number the taxpayer claims for a withholding allowance on their W-4. The lower the withholding allowance the lower the tax.
2. Unemployment Insurance (UI).
Losing a steady earned income does not ruin a Californian. The U. S. Department of Labor started the unemployment insurance program after the Social Security Act was passed by the Congress. Savings do not run out as long as there is a steady income, even if it is not the worker's earned income. Unemployment insurance replaces some of the worker's wages while they are out of work and looking for a job.
Employers pay a percentage on the first $7,000 earned by each employee on their payroll. The percentage is lowest for new employers and goes up as the employer's experience rating goes up.
3. Employee Training Tax (ETT).
Training that makes workers competitive is a California routine. A tax called the ETT pays for the state's investment in productive training programs. The idea is better workers make better businesses that succeed in a competitive American market, or an international market. Skills improved by training open doors for Californians so they can build a productive career.
This is the lowest payroll tax at 0.1 percent on the first $7,000 earned by each employee during a year. California invests the money in the training given to both new workers just getting used to a new job and workers that have already proven their ability to accomplish goals for the business in the workforce.
4. State Disability Insurance Tax (SDI).
Even when a Californian is unable to work, or has a higher priority than work, they can pay the bills. Disability insurance (DI) gives income security to workers unable to work and losing wages because of an injury that happened outside of work. The insurance also covers wage losses during illness, pregnancy, or childbirth. Paid Family Leave (PFL) gives employers the money they need to pay for workers that are unable to work during a period they have to take care of a seriously ill family member or bond with a new child.
California employers take a small percentage out of each employee's paycheck for each dollar earned up to a high maximum wage. The disability fund guarantees any worker can still have an income when they are unable to work.
California Employment Development Department, California Employer's Guide 2011 (January 2011).