As of January 1, 2010 the following payroll tax rates and depositing requirements apply:
SDI (State Disability Insurance and Paid Family Leave): 1.1% of gross wages up to $93,316. Total tax is not to exceed $1026.48. Amounts are to be withheld from employee’s wages.
SWH (State Withholding): See charts in the 2010 California Employer’s Guide (DE-44). Amounts are to be withheld from employee’s wages.
SUI & ETT (State Unemployment Insurance and Employment Training Tax): State ETT rates are .1% of gross wages up to $7,000. Total tax is not to exceed $7.00. State SUI rates are assigned individually to each employer based on historical data and apply to gross wages up to $7,000 per employee. The EDD will mail notification (Form DE-2088) of your 2010 rates by end of December 2009. The employer pays these taxes.
FICA (Federal Insurance Contribution Act): The 7.65% FICA tax is broken down into two components. The first component, Social Security tax comprises 6.2% with the remaining 1.45% representing Medicare. The wage limit for Social Security tax for calendar year 2010 is $106,800. There is no wage limit for Medicare tax. These amounts are to be withheld from employee’s wages.
FWH (Federal Withholding): See charts in the 2010 Federal Employer’s Tax Guide Circular E. Amounts are to be withheld from employee’s wages.
FUTA (Federal Unemployment Tax Act): 0.8% of gross wages up to $7,000 per employee. Total tax is not to exceed $56.00 per employee. The employer pays this tax.
HIRING
For each new employee hired, you need to complete and keep on file an Immigration and Naturalization Service Form I-9 and an Employee’s Employment Eligibility Verification Form. Additionally, each new employee must complete the 2010 Form W-4. All employers are required to report new hires on form DE34, California New Employee Registry, within 20 days of their start-of-work date. If you have any questions you can contact the New Employee Registry Hotline at (916) 657-0529.
For current employees, the Form W-4 you have on file remains in effect until the employee gives you a new one. Any employees who claimed “exempt” from withholdings must file a new Form W-4 each year by February 15.
FICA AND FEDERAL WITHHOLDING DEPOSITS
Under the federal deposit rules, your deposit status is determined by your tax liability from the annual “look back” base period of July 1, 2008 through June 30, 2009. In general, you must deposit federal income tax withheld and both the employer and employee social security and Medicare taxes monthly or semi-weekly with the following exceptions: If tax liability is less than $2,500 for the entire quarter, pay with the quarterly return. If you accumulate tax liability of $100,000 or more, deposit the next business day. If this happens you become a semiweekly depositor for the remainder of the calendar year and the following calendar year.
MONTHLY
If the accumulated tax liability is less than $50,000 for the annual base period, you are required to deposit employment taxes on payroll checks issued during the month by the 15th of the following month. This method will also be use for any new employers since the look back period is considered to be zero.
SEMI-WEEKLY
If the accumulated tax liability is greater than $50,000 for the annual base period, you are required to deposit employment taxes on payroll checks issued on Wednesday, Thursday or Friday by the following Wednesday; deposit employment taxes on payroll checks issued on Saturday, Sunday, Monday or Tuesday by the following Friday.
The term semi-weekly used by the Internal Revenue Service does not mean to deposit every two weeks. Please refer to the specific deposit days highlighted above.
Electronic Federal Tax Payment System (EFTPS) is a convenient option for depositing federal taxes. Since the enrollment process can take up to 10 weeks to complete, we encourage you to enroll now. Some employers are required to use EFTPS. You are required to make electronic deposits of all depository taxes (such as employment tax, excise tax, and corporate income tax) using the EFTPS in 2010 if, your total deposits of depository taxes in 2008 were more than $200,000 or, if you were required to use EFTPS in 2009 or any prior year. Employers who are required to use EFTPS will not be able to deposit these taxes with a check and Form 8109 without incurring a penalty of 10% for the taxes deposited. To order enrollment forms call (800) 555-4477.
Each quarter, all employers who pay wages subject to income tax withholding (including withholding on sick pay and supplemental unemployment benefits) or Social Security and Medicare taxes must file Form 941, Employer’s Quarterly Federal tax Return.
If you are a sole proprietor and file Form 941 for business employees, you may include taxes for household employees on your Form 941. Otherwise, report Social Security and Medicare taxes and income tax withholding for household employees on Schedule H (Form 1040), Household Employment Taxes.
FUTA
For deposit purposes, figure FUTA tax quarterly. If your FUTA tax liability for a quarter is $500 or less, you do not have to deposit the tax. Instead you may carry it forward and add it to the liability in the next quarter. If your FUTA tax liability for any quarter is over $500 (including the amounts carried over from earlier quarters) you must deposit the tax at an authorized financial institution using form 8109. Do not combine this payment with the Federal Withholding and Social Security Taxes. The payment is due by the last day of the first month that follows the end of the quarter.
SUI, ETT, SDI, AND STATE WITHHOLDING
In general, SDI and state withholding deposits should be made on the same day as the federal deposit. SUI and ETT deposits are due quarterly. All state tax payments due must be indicated on tax deposit coupons (Form DE88) submitted to the Employment Development Department.
EFT filing is a secure, efficient and cost-effective method to pay your payroll tax deposits. Some employers are required to file by EFT. Each year your account is reviewed to determine if you meet the requirement for mandatory EFT filing. If the average amount of your SDI/PIT deposits, cashiered during the prior state fiscal year (July 1 through June 30), was $20,000 or more, you are required to pay all SDI/PIT deposits by EFT during the next calendar year, regardless of the dollar amount. First-time mandatory EFT filers are notified of their status by October 31, prior to the year of mandatory EFT participation. Employers who also met the requirement in the preceding year will not receive another notice. Mandatory EFT participants are subject to a 10 percent Non-Compliance Penalty if an SDI/PIT deposit is paid by check with a DE 88 coupon or any method other than EFT. The UI/ETT payments are not subject to the Non-Compliance Penalty. Note: If you meet the requirement for mandatory EFT filing of your payroll taxes with EDD, you are also mandated to remit all child support wage withholding payments by EFT to the Department of Child Support Services’ State Disbursement Unit.
In addition, employers must furnish to each employee, semimonthly or at the time of each payment of wages, an itemized statement showing gross wages earned, total hours worked by the employee, all deductions, net wages earned, inclusive dates of the period for which the employee is paid, the employee's name and his or her social security number, the name and address of the legal entity that is the employer, and all applicable hourly rates in effect during the pay period and the corresponding number of hours worked at each hourly rate (from California Labor Code, section 226). Visit http://www.leginfo.ca.gov/calaw.html to view the full text of the Labor Code.
The Division of Labor Standards Enforcement has useful information on their website and is a good resource for general labor code information. Their website is: http://www.dir.ca.gov/dlse You may be required to withhold a different amount of California Personal Income Tax (PIT) on supplemental wages and bonuses that you give to your employees.
If you have questions regarding the above requirements, please do not hesitate to call.