California Payroll Taxes
As a small business owner, processing payroll is just one item on your to-do list, but ever-changing regulations and tax code updates can make it the most time-consuming task in a given week. These tax updates occur at the federal, state, and local levels, and depending on where your business is based and where your employees live, some small businesses have it tougher than others. We’ve started this monthly series to focus on state-specific tax considerations, to help you keep up with what’s changing around you.
We’ve previously covered Washington, New York, Pennsylvania, Oregon, Florida, and Texas. This month, our spotlight turns to California (CA). While this is by no means a comprehensive list of California tax and payroll regulations, we are highlighting a couple of key things to know.
Last month’s spotlight covered Texas, one of only seven states in the U.S. without a state income tax. California is a different story. California has ten marginal income tax brackets, ranging from 1% up to 13.3%, the maximum end of which is the highest state income tax rate in the country.
California income taxes apply to both California residents, as well as income earned in California by non-residents. There are currently no reciprocity agreements in place between California and neighboring states.
Additionally, California limits or disallows certain federal deductions, including deductions for contributions to a health savings account (HSA), federal estate taxes, qualified higher education expenses, adoption expenses, educator expenses, and state, local, or foreign income taxes paid. There are, however, certain state-specific credits and deductions that can help offset these differences. You’ll want to consult an accountant or financial professional to ensure you are withholding the correct amounts.
California has specific requirements around when wages must be paid. With some exceptions, wages are required to be paid at least twice per calendar month on days designated in advance as regular paydays. Employers are required to establish a regular payday and post notice of such in the workplace to communicate day, time, and location of payment.
There are also specific requirements for when wages must be paid out based on when they accumulated in a calendar month, as well as for weekly, bi-weekly, and semi-monthly payroll periods.
You can read the full provisions of the California payday law here.
California’s final paycheck laws are among the strictest in the country, and includes provision for waiting time penalties if the final paycheck is delayed.
An employee who is terminated or laid off is entitled to their final paycheck immediately.
Final paychecks for employees who voluntarily separate (quit) have slightly different requirements:
- If an employee quits without advance notice, the employer must issue the final paycheck within 72 hours
- If an employee quits with at least 72 hours’ notice, the employee is entitled to the final paycheck on their last day
Employers must include all accrued vacation or PTO in the employee’s final pay.
If an employer fails to provide the final paycheck according to the deadlines outlined, a waiting time penalty will apply: the employer will be required to pay the employee’s average daily pay for each day the employer is late, up to a maximum of 30 days.
As you can see from our coverage of California, every state differs when it comes to payroll and taxes. So whether your business is in the Golden State, the Sunshine State, or any state in between, you want to be sure that you are keeping up with tax and regulatory changes at the federal, state, and local levels. This can be hard to do on your own, but there are resources to help.
If you’re considering outsourcing payroll to help cut down on administrative tasks and mitigate tax risk, here are some things to consider in selecting a provider:
- Do they have your back when it comes to payroll taxes?
- How long is their payroll processing time?
- Do they offer extended support hours on evenings and weekends?
We’ll be back December 26th with a spotlight on tax updates going into 2019.
This website contains articles posted for informational and educational value. SurePayroll is not responsible for information contained within any of these materials. Any opinions expressed within materials are not necessarily the opinion of, or supported by, SurePayroll. The information in these materials should not be considered legal or accounting advice, and it should not substitute for legal, accounting, and other professional advice where the facts and circumstances warrant. If you require legal or accounting advice or need other professional assistance, you should always consult your licensed attorney, accountant or other tax professional to discuss your particular facts, circumstances and business needs.