California Payroll Taxes in 2026: Rates, Rules, and How to Choose The Right Payroll Service

California has the most complex payroll tax environment of any US state.

Employers face four separate state-level taxes administered by two agencies, deposit schedules that vary by payroll size, annual rate changes that take effect each January, and a progressive income tax structure that tops out at the highest marginal rate in the country.

Choosing the right California payroll service—one that handles EDD filings, SDI rate changes, and multi-frequency deposits automatically—is just as consequential as knowing the rules themselves.

This guide gives you the complete, up-to-date picture of California payroll taxes for 2026: every rate, every wage base, every due date, and every filing rule.

What is the best California payroll service for complex state tax requirements?

The best California payroll service for complex state requirements is one that automatically applies EDD rate schedules, handles SDI, UI, ETT, and PIT across multiple deposit frequencies, and updates rates every January without manual input. Deel Payroll does all of this on owned infrastructure, which means California rate changes take effect immediately.

What is California payroll tax?

California payroll tax is the collective term for four mandatory taxes that California employers must calculate, withhold (where applicable), and remit on behalf of their workers. The California Employment Development Department (EDD) administers all four.

The four taxes are:

• Unemployment Insurance (UI): Paid by the employer
• Employment Training Tax (ETT): Paid by the employer
• State Disability Insurance (SDI): Withheld from the employee's wages and remitted by the employer
• Personal Income Tax (PIT) withholding: Withheld from the employee's wages and remitted by the employer

Understanding each tax, its rate, its taxable wage base, and its filing requirements is the baseline for California payroll compliance.

2026 California payroll tax rates at a glance

All rates sourced from the California EDD, in effect as of January 1, 2026.

Key 2026 changes to note:

• The SDI rate increased from 1.2% (2025) to 1.3% as of January 1, 2026, per the EDD
• The UI rate schedule for 2026 remains Schedule F+—Schedule F plus a 15% emergency surcharge, rounded to the nearest tenth—unchanged from 2025
• The ETT rate holds at 0.1%, unchanged from 2025
• The Behavioral Health Services Tax (formerly called the Mental Health Services Tax) applies at 1% on individual California taxable income over $1,000,000. The FTB updated the name for 2026; the rate and threshold are unchanged

Unemployment Insurance (UI) in California

Unemployment Insurance tax is an employer-paid tax that funds temporary wage-replacement benefits for workers who lose their jobs through no fault of their own. The EDD administers the program.

For 2026, Schedule F+ applies, providing contribution rates from 1.5% to 6.2%. New employers are assigned a fixed 3.4% rate for two to three years, after which their rate is experience-rated based on the unemployment claims history of former workers. See UI rates across all states to understand how California compares.

The EDD mails each employer a Notice of Contribution Rates and Statement of UI Reserve Account (DE 2088) each December with their specific UI rate for the coming year. Employers have 60 days from the December 31 mailing date to protest any item on the DE 2088.

• Taxable wage base: The first $7,000 in wages paid to each employee per calendar year
• SUTA Dumping rule: Employers subject to California Unemployment Insurance Code (CUIC) section 977(c) must pay at the highest rate provided by law plus an additional 2%. Employers who acquire an established business have the option of keeping the prior owner's UI rate

Employment Training Tax (ETT)

The Employment Training Tax is a small employer-paid tax that funds training programs to keep California's workforce competitive. The ETT rate is set annually by the EDD.

• 2026 ETT rate: 0.1% on the first $7,000 per employee per year
• 2026 maximum: $7 per employee per year

ETT is reported and paid on the same schedule as UI, and the rates appear together on the DE 2088.

State Disability Insurance (SDI)

State Disability Insurance (SDI) is an employee-funded insurance program—withheld from wages by the employer and remitted to the EDD—that provides partial wage replacement when a worker cannot work due to:

• Non-work-related illness or injury
• Pregnancy and childbirth recovery
• Qualifying Paid Family Leave (PFL) circumstances: Bonding with a new child, caring for a seriously ill family member, or participating in a qualifying military deployment event

SDI is not the same as workers' compensation, which covers on-the-job injuries only.

2026 SDI withholding rate: 1.3%

This is an increase from 1.2% in 2025. The rate applies to all wages — there is no wage ceiling and no maximum contribution per employee. This unlimited SDI structure has been in place since January 1, 2024, when SB 951 eliminated the taxable wage ceiling.

2026 Maximum Weekly Benefit Amount: $1,765 (per the EDD's Voluntary Plan contribution and benefit schedule effective January 1, 2026).

Employers withhold SDI from employee paychecks and remit it to the EDD along with PIT.

Personal Income Tax (PIT) withholding

California Personal Income Tax (PIT) is a tax on the income of California residents and, for non-residents, on California-sourced income. Employers withhold PIT from employees' wages each pay period and remit the withheld amounts to the EDD on a schedule tied to deposit frequency.

PIT is not a flat rate. Instead, it uses a progressive bracket structure administered by the California Franchise Tax Board (FTB) and applied through EDD withholding schedules.

2026 PIT rate structure

California's PIT brackets for 2026 cover a range from 1% to 12.3%, depending on income and filing status. The FTB provides two withholding calculation methods:

• Method A — Wage Bracket Table Method: Employers look up withholding amounts in tables based on payroll period and gross wages
• Method B — Exact Calculation Method: Employers compute withholding using FTB formulas

Both methods are published annually by the EDD. The 2026 schedules are available at edd.ca.gov. 2026 standard deductions (FTB) are:

• Single or married/RDP filing separately: $5,706
• Married/RDP filing jointly, head of household, or qualifying surviving spouse/RDP: $11,412

Behavioral Health Services Tax

For employees with California taxable income exceeding $1,000,000, an additional 1% tax (the Behavioral Health Services Tax, previously called the Mental Health Services Tax) applies on income above the $1 million threshold. Employers should account for this when calculating withholding for very high earners.

Employees must complete two withholding certificates on hire:

• Federal Form W-4 (for federal income tax)
• California Form DE-4 (Employee's Withholding Allowance Certificate, for California PIT)

If an employee does not submit a completed DE-4, employers must withhold as if the employee is single with zero allowances.

Workers' compensation

Workers' compensation insurance is mandatory for all California employers, even if you only have a single employee. It covers workers for injuries sustained on the job, unlike SDI, which covers non-work-related conditions.

Employers can obtain coverage through:

• The State Compensation Insurance Fund (State Fund)
• A licensed commercial insurance carrier
• Self-insurance (for qualifying employers)

The California Department of Insurance publishes premium rate comparisons for the top 50 carriers at insurance.ca.gov. Workers' compensation premiums are not an EDD payroll tax and are not reported on EDD filings.

New hire reporting

Within 20 days of hiring a new employee, California employers must report the hire to the California New Employee Registry, administered by the EDD. This requirement applies to all new hires and re-hires. See the complete guide to new hire reporting requirements for deadlines, methods, and multi-state considerations. Reporting is done through e-Services for Business.

Payroll tax deposit schedules

California SDI and PIT deposits are made more frequently than quarterly UI/ETT filings. Deposit frequency depends on the total amount of California PIT withheld in a prior lookback period and mirrors the employer's federal deposit schedule:

• Next-day depositors: employers who accumulate $500 or more in withheld taxes on any single payday
• Semi-weekly depositors: most mid-size payrolls
• Monthly depositors: smaller payrolls with lower withholding amounts

Late deposits of SDI and PIT carry a 15% penalty plus interest, per the EDD.

UI and ETT quarterly due dates for 2026

UI and ETT are reported and paid quarterly. For 2026, the EDD delinquency cutoff dates (with weekend/holiday adjustments applied) are:

Always verify the current calendar, as adjusted dates are published there.

How to file and pay California payroll taxes

All California employers manage filings, payments, and payroll tax accounts through e-Services for Business, the EDD's online portal.

Payment options include:

• Online via e-Services for Business (EFT/ACH)
• Debit or credit card through ACI Payments (fees apply)
• Check or money order payable to the EDD

EDD audits: The EDD conducts payroll tax audits to verify correct calculation and timely payment. Maintaining accurate records is essential.

Nonprofits: Most nonprofits are subject to all four payroll taxes. Section 501(c)(3) organizations have the option to pay UI taxes like standard employers or to reimburse the EDD directly for UI benefits paid to former workers.

Local sales and use tax note: California jurisdictions also levy varying sales and use taxes (7.25% statewide, with local additions). These are separate from payroll taxes and are not administered by the EDD.

What changed in California in 2026

Beyond the SDI rate increase, two California-specific changes from 2026 are relevant context for employers:

Covered Battery-Embedded (CBE) recycling fee (SB 1215, effective January 1, 2026): A new consumer fee of 1.5% of retail price (up to $15 per product) applies to products with non-removable batteries. This is collected by retailers, not employers — but it may affect expense reimbursements for company-purchased electronics.

Prepaid Mobile Telephony Services (MTS) surcharge extension (AB 330, effective January 1, 2026): The state's local prepaid wireless surcharge collection act, which was set to expire in January 2026, has been extended to January 1, 2031. Employers who provide prepaid wireless benefits or allowances may see this reflected in carrier billing.

Neither change affects employer payroll tax obligations directly, but both are part of the 2026 California tax environment.

California payroll service: What complex requirements actually demand

A California payroll service that handles complex state tax requirements has to do more than calculate a flat deduction. It needs to apply the correct EDD withholding schedules, update rates when the EDD publishes the DE 2088 each December, set deposit frequency correctly by employer, and manage the interaction between federal and California withholding systems, all without manual intervention.

California is one of a small number of states with:

• A progressive income tax structure with nine brackets and the highest top marginal rate in the US (12.3%, plus the 1% Behavioral Health Services Tax on income above $1M)
• An SDI program with no wage ceiling (unlike most states' disability programs)
• Annual rate changes published in December, effective January 1
• Dual-agency administration (EDD for withholding and deposits; FTB for income tax calculations)
• Deposit frequency that varies by employer size and mirrors federal schedules
• Experience-rated UI with annual adjustments and a Schedule F+ emergency surcharge in effect for the third consecutive year

How Deel Payroll handles California complexity

Deel Payroll runs on owned infrastructure—not through third-party processors—which means California rate updates, EDD schedule changes, and SDI adjustments are applied directly in the payroll engine without waiting on a vendor intermediary.

When the EDD publishes updated withholding schedules each December, Deel Payroll's continuous compliance model applies those rates to the January 1 cycle automatically. When the SDI rate moved from 1.2% to 1.3% for 2026, that change was applied at the system level, not as a manual configuration task for the employer's payroll team.

Deel Payroll supports both self-serve and fully managed configurations for California employers. Companies running multi-state payroll that includes California can isolate California-specific rules—SDI withholding, EDD deposit schedules, PIT bracket calculations—without those rules conflicting with other state configurations in the same payroll run.

The result: California payroll compliance without the constant need to track every EDD bulletin and FTB withholding schedule update.

See how Deel Payroll handles US payroll or book a demo to speak with an expert.