If you start a business in California, you’ll likely need to pay unemployment insurance (UI) taxes if you hire employees. Most businesses with employees are liable for unemployment insurance taxes based on the first $7,000 in wages paid to each employee in a calendar year. Learn about how to register, report and pay California unemployment insurance tax in our guide.
How to Register for CA Unemployment Insurance Tax
State unemployment insurance tax is one of four payroll taxes employers are responsible for, all of which you can register for simultaneously when signing up for a payroll tax account with the California Employment Development Department. California’s Unemployment Insurance Tax and Employee Training Tax are paid by the employer. Meanwhile State Disability Insurance Tax and California Personal Income Tax are withheld from employee wages by the employer. You can register an account online or print out and mail a DE-1 Commercial Employer Account Registration and Update Form.
You’ll need to provide the following information:
- Name and Social Security number of all owners, partners, members or officers
- Business physical and mailing addresses, phone number, and email address
- Date of first payroll when wages exceeded $100
- Your federal employer identification number (EIN)
- A description of your company’s industry
- Previous payroll tax account information, if any
- Exact legal business name on record with the California Secretary of State
- Secretary of State ID number
- DBA name, if any
- Name, phone number, address and email address for a contact person
The online registration concludes with some questions for professional payroll services and a final affirmation that the information provided is true. You will receive a confirmation number when enrollment is done. Within a few minutes, you’ll receive a verification link in the email you provided, which you’ll need to submit within 24 hours—otherwise you’ll have to restart registration. In most cases, you will receive your payroll account tax number within a few minutes of verifying your registration.
Registering creates an unemployment reserve account that records your contributions. You can access it through the Employment Development Department’s e-Services for Business portal. Despite the name, it is not a monetary account and the balance is nonrefundable. The benefit charges (how much has been paid in unemployment benefits for your former employees) and credits (taxes paid) are what is used to determine your contribution rate.
Who Needs to Pay California Unemployment Insurance Tax?
Once a California employer pays more than $100 in wages in a year, they are liable for paying unemployment insurance tax. Workers that are exempt from the unemployment insurance requirement include independent contractors, church employees, and household employees paid less than $1,000 a quarter, among others.
How does California determine my insurance rate?
The majority of California businesses get their rate using California’s experience rating system, which determines what percentage rate you’ll pay in UI taxes. The experience rating system determines contribution rates with a ratio based on the amount of money in a given company’s reserve account balance, divided by its base average taxable payroll for the previous three years. The company then is assigned a percentage rate based on that ratio.
That percentage rate varies, though new employers pay a set 3.4 percent for their first two to three years, depending on when in the calendar year the business pays an employee sufficient wages to qualify for the first time. Established employers past that point may have a higher or lower rate than new employers, depending on their rating. New ratings are provided every year in December by the Employment Development Department (EDD).
Currently, California’s maximum possible unemployment insurance tax rate is 6.2 percent.
What is a reimbursable employer?
California public entities and some nonprofits are allowed to be reimbursable employers, which use an alternative system based on reimbursement for unemployment purposes. This is the only alternative method to the experience rating system in use for California employers.
How much are wages taxed for California unemployment insurance?
California’s taxable wage limit currently tops out at $7,000 per employee. Any additional wages earned over $7,000 are not counted for the purposes of this tax. At the 6.2 percent maximum rate, that translates to a yearly California unemployment insurance tax fee of $434 per employee at the highest end.
What is the Employment Training Tax?
The Employment Training Tax provides funds to train employees in certain industries with the goal of making California more competitive in those areas. This is another payroll tax that employers must contribute towards, if eligible.
If your reserve account balance is zero or more, your business pays a 0.1 percent Employment Training Tax in addition to your unemployment insurance tax. If your reserve account balance is in the negative, you do not pay the training tax.
How to File CA Unemployment Insurance Tax Reports
California’s unemployment insurance tax returns must be filed quarterly with other payroll tax reports through the e-Services for Business portal. While most businesses pay quarterly, some businesses with higher-than-average withholding may need to make deposits more frequently—monthly, or even semi-weekly. To find out how often you’ll need to pay, consult the schedules provided by the EDD.
Do I need to pay Unemployment Insurance Tax if I hire independent contractors?
Any contractors you hire are not considered employees for the sake of paying payroll taxes like unemployment insurance. Be careful, however—if you misclassify your employees as contractors, you could be liable for penalties and fines.