Filing Requirements and Tax Rates

• Under California law, employers begin paying payroll taxes after they pay more than $100 in payroll wages in one employment quarter. California considers cash compensation and non-cash benefits like meals, stipends, bonuses and commission as wages. All businesses in California must pay unemployment taxes if they meet the minimum threshold filing requirement of $100 for each calendar quarter. Employers responsible for paying unemployment insurance taxes can include sole proprietors, corporations, partnerships, joint ventures and nonprofit organizations. California does not exclude any type of business entity, and even requires estates to pay unemployment taxes. For the first few years, new employers in California pay 3.4 percent on the first $7,000 paid to each of their employees. The tax rate may increase to 6.2 percent, but the maximum amount employers pay for each employee is $434 in payroll taxes, as of 2011.
  
  

Household Employer

• Household employers include private employers who hire domestic workers, local college fraternal organizations, and college clubs. These businesses must pay taxes if they pay at least $750 in payroll wages in one calendar quarter.
  
  

SUTA Dumping

• California actively investigates "dumping schemes," wherein employers form new companies solely to evade the state's mandatory unemployment taxes. The State Unemployment Tax Act, or SUTA, involves an employer who fraudulently forms a "shell" company to pay a lower payroll tax rate then its parent company. After the shell company obtains a lower payroll tax rate, the shell company "dumps" its parent company. Both California law and federal law bans these types of illegal tax schemes intended to defraud state unemployment systems. Based on the federal SUTA Dumping Prevention Act of 2004, California was one of the first jurisdictions to pass a state law similar to the federal law. Guilty employers face heavy penalties and may pay penalties of up to 10 percent of their under-reported earnings.
  
  

Considerations

• Since tax laws can frequently change, do not use this information as a substitute for legal advice. Seek advice through an attorney licensed to practice law in your jurisdiction.