California levies a personal income tax on employees who work in the state. California is also one of the few states that mandate state disability insurance withholding. Your employer makes the necessary deductions from your paychecks and pays them to the California Employment Development Department, which administrates the state’s payroll tax policies.
For federal income tax withholding purposes, your employer is supposed to give you a W-4 form to complete and submit. For California income tax withholding purposes, your employer can use the W-4, or the state tax form, DE-4. The state department says relying on the W-4 for personal income tax withholding may result in under-withholding -- in other words, you might owe money at the end of the year. For a more accurate reflection of your personal income tax liability, complete the DE-4. Include your filing status, and use the worksheets on pages 3 and 4 to determine your total allowances, which should go on line 1. If you want additional withholding and your employer agrees, put the extra amount on line 2.
To claim exempt from California tax -- meaning you're excluded from the tax --you must also claim exempt from federal income tax, using the W-4. You’re exempt if in the previous year you owed no federal income tax and in the present year you don’t anticipate owing any tax. If applicable, note on the W-4 that the exemption applies to both California and federal income tax.
State Tax Withholding
To figure personal income tax withholding, your employer uses the DE-4 or W-4 and the state tax-withholding tables. Specifically, it obtains your filing status and allowances from the DE-4 or W-4 and applies the state tax table that matches the DE-4 or W-4 data and your wages and pay period. For example, you claim married filing status and two allowances and earn $500 weekly. According to page 40 of the California withholding schedules for 2012, you would pay $0.62 weekly for personal income tax. The table gives the percentage to withhold if wages exceed a specific amount.
Supplemental wages are earnings that are not considered regular wages. This includes bonuses, commissions, severance pay, vacation pay, overtime, stock options and sales awards. If supplemental wages are paid with regular wages, California income tax is withheld at the regular withholding rate. If paid separately, the tax is withheld at a flat percentage. At the time of publication, bonuses and stock options are withheld at 10.23 percent; all other supplemental wages are withheld at 6.6 percent.
At the time of publication, your employer withholds state disability insurance at 1.0 percent of wages up to $95,585 for the year. Note that California income tax withholding is based on taxable wages. Therefore, subtract from your gross wages any pretax deductions that you might have, such as qualified health, life and accident insurance and 401(k) contributions that are not subject to California income tax before calculating the tax. Tax requirements vary by pretax deduction, so consult your human resources or payroll department or the the state of California for clarification, if necessary.
You’re also subject to federal withholding, which includes federal income tax, Social Security tax and Medicare tax. Federal income tax withholding is based on the W-4 and federal tax tables. At the time of publication, Social Security tax is withheld at 4.2 percent of taxable wages up to $110,100 for the year, and and Medicare tax is withheld at 1.45 percent of all taxable wages.
- California Employment Development Department: Form DE-4
- California Employment Development Department: California Withholding Schedules for 2012
- California Employment Development Department: Rates, Withholding Schedules, and Meals and Lodging Values
- California Employment Development Department: Taxability of Employee Benefits
- IRS.gov: Form W-4
- IRS.gov: Circular E, The Employer's Tax Guide