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Summary of differences between federal and state regulations
Income tax withholding
California Personal Income Tax (PIT) is withheld from employees’ wages and credited toward the amount due for the employees' annual California state income tax. The amount withheld is based on the employee’s W-4 or DE 4 filed with the employer.
Wages paid to a California resident for work done in or out of California and wages paid to a nonresident for work done in California are both subject to state income tax and are usually subject to PIT withholding. If employees work and/or reside in more than one state, employers may need to withhold PIT and the income tax of other state(s), political subdivision(s), or the District of Columbia.
Unemployment taxes
All states finance UC primarily through contributions from subject employers on the wages of their covered workers. In addition, three states (Alaska, New Jersey, and Pennsylvania) collect contributions from employees. These taxes are deposited by the state to its account in the UTF in the Federal Treasury, and are withdrawn as needed to pay benefits.
Many states have adopted a higher tax base than what is provided in FUTA. Hawaii's wage base is usually higher and changes periodically. In all states, an employer pays a tax on wages paid to each worker within a calendar year up to the amount specified in state law. In addition, most of the states provide an automatic adjustment of the wage base if federal law is amended to apply to a higher wage base than that specified under state law. As a result of the many variables in states taxable wage bases and rates, benefit formulas, and economic conditions, actual tax rates vary greatly among the states and among individual employers within a state.
Wages subject to unemployment tax in this state equal $7,000.
Minimum and maximum rates in this state are 1.5 and 5.4 %. Rates apply to experience rated employers only and do not include applicable surtaxes or penalties.
EITC notice
Effective January 1, 2008, all California employers are required to notify all of their employees of the federal Earned Income Tax Credit (EITC).
Assembly Bill 650, Chapter 606 (Lieu and Jones) requires any employer who is subject to, and is required to provide unemployment insurance, to employees to notify all employees that they may be eligible for the EITC. Employers must give notification within one week before or after, or at the same time, they provide employees with an annual wage summary (IRS Form W-2, 1099). This new law also requires the employer to process the IRS Form W–5 for advance payments of the EITC, if requested by the employee.
You must provide notification to your employees by either handing it directly to your employee or mailing it to your employee's last known address. Posting of this information on an employee bulletin board will not satisfy the notification requirement.
The notification must include instructions on how to obtain any notices available from the Internal Revenue Service for this purpose, including, but not limited to, the IRS Notice 797 and Form W–5, or any successor notice or form, or any notice created by you, as long as it contains substantially the same language as the notice below.
NOTICE TO EMPLOYEES
Based on your annual earnings, you may be eligible to receive the earned income tax credit from the federal government. The earned income tax credit is a refundable federal income tax credit for low-income working individuals and families. The earned income tax credit has no effect on certain welfare benefits. In most cases, earned income tax credit payments will not be used to determine eligibility for Medicaid, supplemental security income, food stamps, low-income housing or most temporary assistance for needy families payments. Even if you do not owe federal taxes, you must file a tax return to receive the earned income tax credit. Be sure to fill out the earned income tax credit form in the federal income tax return booklet. For information regarding your eligibility to receive the earned income tax credit, including information on how to obtain the IRS Notice 797 or Form W-5, or any other necessary forms and instructions, contact the Internal Revenue Service at 1-800-829-3676 or through its Web site at www.irs.gov.
State
ContactsIncome tax withholding
Employment Development Department
Unemployment taxes
Employment Development Department
RegulationsIncome tax withholding
Title 18 Public Revenue; Division 3 Franchise Tax Board; Chapter 2.5 Personal Income Tax (Taxable Years Beginning After 12-31-54)
Unemployment taxes
California Code of Regulations, Title 22 Social Security, Division 1, Employment Development Department
Federal
ContactsInternal Revenue Service
Regulations Title 26 Code of Federal Regulations, Internal Revenue