The Internal Revenue Service administers federal withholding policies. The regulations dictate how the employer should withhold federal income tax, Social Security tax and Medicare tax. The withholding of state income tax applies only if the state charges it. The state of California requires employers to withhold both personal income tax (PIT) and state disability insurance (SDI) from compensation paid to workers. Additionally, the IRS requires California employers to perform federal withholding.
Refer to the employee's W-4 form or his state employee withholding allowance certificate (DE4 form) for his withholding conditions. Ordinarily, you can refer to his W-4 form, which states his federal withholding conditions, such as filing status and allowances. But if he claimed a different number of allowances and filing status for state income tax purposes, refer to his DE4 form instead. Notably, the W-4 form does not include the "Head of Household" option, but the DE4 form does.
Use the California withholding tax tables to figure PIT. You can get the withholding schedule online via the California Employment Development Department website. Use method A or method B to figure the tax withholding. Method A includes the wage bracket method, which can be used for salaries or wages up to $1 million. This method gives you the withholding amount based on the employee's filing status, pay period and number of allowances. Method B gives you the precise amount of tax to withhold based on allowances, filing status, pay period, standard deduction and credits for exemption allowance. Use the tables provided in method B to determine the standard deduction and exemption allowance credits.
Withhold SDI tax based on the annual tax rate and yearly wage base. For 2010, the rate is 1.1 percent of taxable wages up to $93,316. The rates may change annually, but it's the same for all California employees.
Calculate Medicare tax at 1.45 percent of all gross income, and Social Security tax at 4.2 percent of gross income, up to $106,800 annually. The rates are available on the Social Security Administration website and in IRS Circular E.
Figure federal income tax withholding using the employee's W-4 form and the IRS withholding tax tables (Circular E). The withholding amount depends on the employee's filing status, pay period and allowances.
The IRS requires you to pay a matching amount of Social Security and Medicare taxes. The state of California requires employers alone to pay unemployment insurance and employment training tax (if applicable). The state usually sends employers a bill for applicable tax rates each year. The employer can consult the California Employer's Guide for its filing and payment schedule. Furthermore, it can call the Employment Development Department for assistance with state payroll taxes.
Things You'll Need
IRS Circular E
California withholding tax tables
State disability tax rate
- California Employment Development Department: California System of Experience Rating
- California Employment Development Department: California Employer's Guide
- California Employment Development Department: SDI Contribution Rates
- Social Security Administration: Social Security & Medicare Tax Rates
- IRS: Circular E
- California Employment Development Department: DE4 Form
- IRS: W-4 Form
- California Employment Development Department: EDD's e-Services
- California Employment Development Department: Contact Us About Payroll Taxes