Four taxes, two payers
The California Employment Development Department (EDD) says that it administers four payroll taxes. Two are paid by the employer and two are withheld from employees' wages.
| Tax | Who pays |
|---|---|
| Unemployment Insurance (UI) | Employer |
| Employment Training Tax (ETT) | Employer |
| State Disability Insurance (SDI) | Withheld from employee wages |
| Personal Income Tax (PIT) withholding | Withheld from employee wages |
The EDD also notes that nonprofit organisations and public entities may choose to reimburse the state for unemployment benefits paid instead of paying UI contributions. Its site lists employer services including registration, e-file and e-pay requirements, an online payroll tax payment plan, a due-date calendar, a New Employee Registry and independent contractor reporting.
Rates, wage bases and deadlines change, so check the EDD for current figures; this page does not quote them.
Whose money is it?
The two withheld taxes are not business income. Money taken from an employee's paycheck for SDI and PIT belongs to the state from the moment it is withheld, even though it sits in the business's bank account until it is remitted. A common cash flow mistake is to treat that balance as working capital. When the deposit is due, the money has to be there.
The simplest defence is a separate account. Move the withheld amounts and the employer taxes into it every payday, and the deposit is never a surprise.
A cash calendar
- Each payday: wages go out, taxes are withheld, employer taxes accrue.
- Each deposit date: the EDD's schedule determines when the money goes to the state. Check which schedule applies to your business.
- Each quarter: reports are due. Check the due-date calendar on the EDD site.
- Each year: year-end forms for employees and a reconciliation.
The overall pattern is simple: money you owe the state accrues faster than you notice, and the deposit dates come with fixed deadlines.
When a business falls behind
The EDD site lists an online payroll tax payment plan, which suggests that falling behind is common enough to have a process. If you are behind, contact the EDD about the options available to you. Do not use short-term funding to hide a shortfall that has no source of repayment; fix the cash flow first.
Where funding fits
For a growing employer, payroll arrives before revenue. A new hire is paid and taxed from the first day, long before the extra work turns into an invoice that is paid. Working capital from $25,000 to $5,000,000 can bridge that gap. Funding can arrive in as little as 24 hours, FICO scores of 500 and up are considered, and the file centres on about three months of bank statements, with no tax returns required. The credit pull is soft and sole proprietors can apply. The application takes about five minutes.