Bookkeeping Services in Los Angeles: California Compliance for LA Businesses

If you run a business in Los Angeles, the bookkeeping work is not the same as it is in Texas or Nevada. California has its own income tax, its own franchise tax, its own sales tax administration, its own payroll taxes, its own employment law, and its own enforcement agencies. Los Angeles adds a city-level business tax on top of all that. A clean QuickBooks Online file for an LA business needs accounts, classes, and tags that match those layers, or your CPA spends every January reconstructing what you actually owe. Here is what to track and how to set it up.

California state income tax for the entity. If you operate as an LLC or corporation, the entity itself pays California tax. C corporations pay 8.84% of net income, with a minimum of $800. S corporations pay 1.5% of California-source net income, with the same $800 floor. LLCs taxed as partnerships pay an $800 minimum and a graduated gross-receipts fee that runs from $900 at $250,000 in California gross receipts up to $11,790 at $5 million-plus. Sole proprietors and single-member LLCs that did not elect corporate treatment pay the LLC fee on the gross-receipts schedule but the income flows through to the owner’s personal CA return. In QBO, set up a current liability account called CA State Tax Payable and a separate one called CA Franchise Tax Payable – $800 Minimum. Keep them separate. The minimum tax has its own due dates (the 15th day of the fourth month for most entities) and the gross-receipts fee has another. Mixing them in one account makes reconciliation harder than it needs to be.

California sales tax. Administered by the California Department of Tax and Fee Administration (CDTFA), not the FTB. This trips up newcomers. The combined rate in LA County is currently 9.5% in most parts and up to 10.25% in Santa Monica, Culver City, and a handful of other municipalities. The state portion is 7.25%. The remainder is a combination of county, district, and city add-ons that vary by the exact delivery address. You need a CDTFA seller’s permit before you make a single taxable sale. In QBO, turn on the sales tax module under Taxes, set the agency as CDTFA, and let QBO calculate based on customer address. Watch out for one thing: QBO defaults to the headquarters rate unless you flip on automated sales tax with address-based calculation. We see businesses undercharge by hundreds of dollars a month on this default.

LA City Business Tax. The Los Angeles Office of Finance requires every business operating within the city limits to register and pay an annual business tax. The rate depends on your tax classification, which depends on what your business actually does. Professional services pay $4.50 per $1,000 of gross receipts (so 0.45%). Wholesale pays $1.27 per $1,000. Multimedia and certain creative classifications enjoy lower rates and partial exemptions. In QBO, create an expense account called LA City Business Tax and a liability account called LA Business Tax Payable. Accrue monthly so you can see what you actually owe.

California payroll taxes. Three separate items, all administered by the California Employment Development Department (EDD). Unemployment Insurance (UI): paid by the employer, the rate floats between 1.5% and 6.2% on the first $7,000 of wages per employee per year. Employment Training Tax (ETT): 0.1% on the same $7,000 base. State Disability Insurance (SDI): 1.1% paid by the employee through withholding, with no wage cap as of 2024. The cap was removed by SB 951. Plus state income tax withholding, which has its own bracket schedule. In QBO Payroll or whatever payroll system feeds QBO, each of these needs its own liability account. Lumping them together is the most common LA bookkeeping mistake we see.

1099 contractor tracking. California has stricter rules than federal. AB 5 and the ABC test mean a worker is presumed to be an employee unless the business can prove all three prongs (control, outside the usual course of business, established independent trade). The result: many contractors who would be fine as 1099s in another state must be W-2 employees in California. In QBO, tag every vendor with their classification status and review it quarterly. If a worker fails the ABC test, fix it before the audit, not after.

Industry-specific items. Cannabis businesses pay the CDTFA cannabis excise tax and a cultivation tax. Restaurants need to separate food sales (exempt for grocery items) from prepared food (taxable). Real estate agents must track marketing expenses tied to specific listings for self-employment tax planning. Entertainment industry workers — both the production companies and the individual loan-out corporations — have their own payroll and residual tracking needs that don’t fit a standard chart of accounts.

The practical setup. A well-built QBO file for an LA business has at minimum these custom liability accounts: CA Franchise Tax Payable, CA State Income Tax Payable, CA LLC Fee Payable, CDTFA Sales Tax Payable, LA City Business Tax Payable, EDD UI Payable, EDD ETT Payable, EDD SDI Payable, CA State Withholding Payable. Plus the standard federal payable accounts (FICA, FUTA, federal withholding). That gives your CPA a clean picture in 30 seconds. Without those accounts, you get a December scramble to reconstruct what was paid to which agency, and that is when filings get late and penalties accrue. We cover related setup steps in the QBO Advanced setup guide.

Monthly close discipline tied to each agency. A clean LA file does not just have the right accounts. It has a monthly close that ties to each agency. CDTFA sales tax reconciles against the filed return and the cash payment. EDD payroll liabilities reconcile against DE 9 and the federal Form 941. The LA Office of Finance accrual reconciles against the prior year’s filing plus year-to-date gross receipts at the right classification rate. FTB franchise tax accrues at $66.67 a month. Five reconciliations, all done on the same checklist, every month. That is what a usable LA bookkeeping operation looks like. Without it, the agencies catch the discrepancies before you do, and the cost of fixing them after the fact is always higher than the cost of doing them on schedule.

The single biggest win. If you only do one thing differently, it is this: separate the agencies on your chart of accounts. Most LA business owners we start working with have one “Taxes Payable” account or, worse, no liability tracking at all (the tax payments are booked directly to an expense account on the day they hit the bank). Either approach hides the obligation, distorts month-end financials, and makes the year-end reconciliation a forensic exercise. Splitting into six or seven distinct liability accounts is 30 minutes of setup and saves dozens of hours a year. Our QuickBooks Online bookkeeping pillar guide covers the broader chart-of-accounts setup principles.

The California $800 minimum franchise tax is one of the highest entity-level minimums in the country and one of the most misunderstood items in California small-business taxation. The short version: if your entity is registered or doing business in California, you owe $800 a year to the California Franchise Tax Board (FTB), even if you lost money, even if you had zero revenue, even if you formed the company on December 28th and did not open the doors until the next year. There are a few exemptions and timing nuances but the rule itself is unforgiving. Here is how it actually works.

Who pays the $800. Every corporation (C or S), every LLC, every limited partnership, and every limited liability partnership that is either formed in California or registered to do business in California pays the $800 minimum annually. Sole proprietors do not pay it because they are not separate entities. General partnerships do not pay it because they are not registered entities. But the moment you file Articles of Organization for an LLC or Articles of Incorporation for a corporation, you are on the hook for $800 a year for as long as the entity exists in good standing.

The “doing business” trap. California defines doing business broadly. If you have an office in California, employees in California, sales above $735,019 (the 2024 threshold, indexed annually) to California customers, or property in California above $73,502, you are doing business in California regardless of where the entity was formed. A Delaware LLC owned by an LA resident operating from a home office in LA is doing business in California and owes $800 a year to the FTB, plus the LLC gross-receipts fee. We see this every year — an entrepreneur forms a Delaware C-corp on the advice of a startup playbook, never registers in California, and then gets a Notice of Proposed Assessment for three years of back franchise tax plus penalties.

When the $800 is due. The due date is the 15th day of the fourth month of the entity’s tax year. For a calendar-year entity, that is April 15. For a fiscal-year entity, count four months from the start of the year. The first-year payment is different: you pay an estimated $800 by the 15th day of the fourth month of your first taxable year (Form 3522 for LLCs, Form 100-ES for corporations). Miss the deadline and the FTB adds a late-payment penalty plus interest. The interest rate floats with federal short-term rates plus 3% and is currently around 10% annualized.

The first-year exemption that mostly is not one. AB 85, signed in 2020, gave LLCs, LPs, and LLPs a first-year $800 minimum tax exemption for entities formed between January 1, 2021 and January 1, 2024. That exemption sunset on January 1, 2024. As of 2026, the only meaningful first-year break is for corporations: under R&TC Section 23153, a corporation’s first taxable year is exempt from the minimum tax if it has a short year. LLCs and LPs are back to paying $800 in year one.

The gross-receipts fee on top. If you are an LLC taxed as a partnership or disregarded entity, the $800 is the floor, not the ceiling. There is an additional LLC fee based on California-source gross receipts: $900 between $250,000 and $499,999, $2,500 between $500,000 and $999,999, $6,000 between $1,000,000 and $4,999,999, and $11,790 above $5,000,000. This fee is in addition to the $800. So an LLC with $2 million in California gross receipts owes $800 + $6,000 = $6,800 a year, before any income tax. The fee is on gross receipts, not net income. Even a money-losing LLC with $2 million in revenue owes the full $6,800. That is where the franchise tax really bites.

S-corps and the 1.5% problem. S corporations in California are not pass-through for state tax purposes. California taxes the S-corp itself at 1.5% of California-source net income, with the $800 minimum. So if your S-corp has $300,000 in California net income, the state tax is $4,500 (1.5% of $300,000), and the shareholders also pay individual CA income tax on their share of the same income at their personal rates. This double-counting surprises owners who set up S-corps based on federal-only logic. The 1.5% is not a credit against personal tax. It is a separate entity-level liability. We help business-owner clients model this trade-off — see our business owners page for context.

How to account for it in QBO. Create a current liability called CA Franchise Tax Payable. Each month, accrue $66.67 (one-twelfth of $800) so the books reflect the obligation evenly. When you make the payment, debit the liability and credit cash. For LLCs subject to the gross-receipts fee, also accrue the fee monthly once revenue clears each tier threshold. Do not wait until April to book the entire $6,800 — it distorts the March P&L and hides the obligation from cash forecasting all year.

The dissolution timing problem. Many owners think they can save $800 by dissolving an inactive entity. Sometimes they can, but the timing is brutal. If the entity exists on January 1, the $800 is owed for that year. You must file a Certificate of Cancellation with the Secretary of State and a final return with the FTB before the year ends to avoid the next year’s $800. If you miss it by even a day, you owe another full $800.

Penalties. Failure to pay the $800 by the due date triggers a 5% late-payment penalty plus 0.5% per month, capped at 25%. Interest runs on top. The FTB will eventually suspend the entity, which means you lose the right to sue, defend a lawsuit, or use your business name until you pay everything plus a reinstatement fee. We see suspended entities every year, usually owned by people who left California years ago and forgot the entity was still on file.

Bottom line. Plan for $800 a year per California entity, every year, no matter what. If you are an LLC with California gross receipts above $250,000, plan for the fee on top. If you are an S-corp with California income, plan for 1.5% of that income. The franchise tax is not a tax on profit. It is the cost of having an entity in California. Build it into your annual budget the same way you build in rent.

The Los Angeles City Business Tax is one of the most overlooked tax obligations in the city. Every business operating within the City of Los Angeles must register with the LA Office of Finance and pay an annual gross-receipts tax. The rate depends on what kind of business you run, the base is your worldwide gross receipts (with limited apportionment), and the filing deadline is February 28 every year. Miss any of those and you face penalties, interest, and eventually a citation. Here is the full picture.

Who has to register. Every business with a fixed location in the City of LA, plus every business without a fixed location that conducts business in the city. That second category catches a lot of remote workers, freelancers, and consultants who think they are exempt because they work from home. If your home is in Los Angeles and you run a business from it, you owe the LA City Business Tax. Even a side hustle. Even an LLC with no employees. There is no minimum income threshold for the registration requirement — although there is for the tax itself (more on that below). You need a Business Tax Registration Certificate (BTRC) before you start operating, and the city expects renewal each year.

The eight tax classifications. LA classifies businesses into roughly eight categories, each with its own rate per $1,000 of gross receipts. Professions and Occupations (lawyers, accountants, consultants, doctors): $4.50 per $1,000, or 0.45%. Personal Services (hair salons, repair, cleaning): $2.55 per $1,000. Retail Sales: $1.27 per $1,000. Wholesale Sales: $1.27 per $1,000. Auto Park: 1.50% of gross receipts. Multimedia (film, TV, music production, software): exemption or sharply reduced rate depending on subcategory. Rental of Real Property: $1.27 per $1,000. Miscellaneous Services: $5.07 per $1,000. The classification determines your rate, and the rate matters a lot. A $1 million law firm pays $4,500 a year. A $1 million retail store pays $1,270.

How to determine your classification. The city looks at your dominant business activity. If you do two things, you may need two classifications (and two BTRCs). The classification is self-selected initially but the city audits and re-classifies frequently. We have seen consulting firms classified as Professions when they were actually doing Personal Services work at a lower rate, and vice versa. If your rate seems wrong, request a classification review from the Office of Finance. The form is on their website. They will respond in writing.

The Small Business Exemption. If your gross receipts are below $100,000 for the year and you file on time, you owe zero tax. You still must register and file. The exemption is not automatic — you have to claim it on your annual renewal. Miss the February 28 deadline and you lose the exemption for that year. The penalty for losing it is usually a few hundred dollars in tax plus penalties and interest. We see this every year — clients assume the exemption applies automatically, never file, and get a bill three years later for back tax plus 40% in penalties and interest.

The Creative Artist Exemption. If you are an individual artist with gross receipts below $300,000 and your work falls into the city’s defined creative classifications (visual art, performing art, literary, musical), you may qualify for the Creative Artist Exemption. You still need to file. The exemption is limited to specific NAICS codes and is reviewed each year. We have several clients in entertainment who qualify, but the qualification is narrower than people think — a film editor running a post-production company is usually not eligible because the entity is a service business, not an individual artist.

The Multimedia Exemption. One of the most generous breaks the city offers. Multimedia businesses — defined to include film and TV production, music production, software publishing, video game development, and certain web design — pay a sharply reduced rate or zero rate on a portion of their gross receipts. The categories and thresholds shift periodically. Always check current LAMC Section 21.41 before assuming you qualify. The exemption is significant for production companies: a $3 million production company classified as Multimedia might pay zero LA city tax versus $13,500 if classified as Personal Services.

Apportionment for multi-city businesses. If your business operates in LA but also in other cities, you apportion gross receipts based on where the work is performed. The standard methodology uses payroll, property, and sales factors — similar to state apportionment but city-specific. For a consulting firm with an LA office and a Beverly Hills client, only the LA-attributable portion is taxed by LA. Beverly Hills has its own business tax with its own rules. Track time and revenue by city if you operate in more than one jurisdiction. We do this in QBO using class tracking — see our custom fields guide for setup.

How to file. The annual return is filed online through the LA Office of Finance portal. The form asks for your prior-year gross receipts (worldwide), then asks you to apportion if you have non-LA operations, then calculates the tax based on your classification. Pay online with ACH or card. Print the confirmation. Keep it forever. The Office of Finance will sometimes audit returns three or four years back, and if you cannot prove what you reported, they will assess based on bank deposits, which is rarely favorable.

Estimated payments. Most LA businesses pay annually, not quarterly. If your prior-year tax exceeded $40,000, you must make quarterly estimated payments. That threshold catches mostly mid-size professional firms and larger production companies. Below it, just pay the annual bill by February 28.

Penalties. Failure to register: 50% of the tax due, with a $50 minimum. Failure to file by February 28: 5% per month, capped at 40%. Plus interest at 1% per month from the original due date. Plus the loss of any exemption you would have qualified for. The penalties add up fast. A business that owes $1,000 in city tax and is two years late could end up owing $1,400+ once penalties and interest land.

The audit profile. The Office of Finance audits returns based on industry benchmarks, anonymous tips, and discrepancies between LA Business Tax filings and California sales tax filings. The most common audit triggers we see: gross receipts on the LA return materially lower than the company’s federal return, classification chosen at a lower rate than the industry standard, and businesses that claim the Small Business Exemption multiple years in a row while showing growth on bank deposits.

How to set it up in QBO. Create an expense account called LA City Business Tax and a current liability called LA Business Tax Payable. Each month, accrue an estimate based on year-to-date gross receipts times your rate. At year-end, true up to the actual filing amount. This puts the obligation on your books continuously instead of as a February surprise. For multi-city businesses, use class tracking to flag LA-source revenue so the apportionment calculation is straightforward at filing time. The discipline of monthly accrual is what separates clean LA bookkeeping from the kind that produces a panic in February.

California sales tax for an LA business that ships nationwide has gotten more complicated, not less, since the 2018 Wayfair decision. Before Wayfair, you collected sales tax only in states where you had physical presence — an office, an employee, inventory in a warehouse. After Wayfair, every state can require you to collect tax if your sales into that state exceed an economic nexus threshold, even with no physical presence. As an LA business shipping to all 50 states, you now have to think about California sales tax, sales tax in every state where you cross the threshold, and the recordkeeping to support both. Here is how we structure it for clients.

California sales tax — the home base. Administered by CDTFA. The state rate is 7.25%. County rates add 0.25% to 0.5%. District rates (city and special-purpose districts) add another 0.5% to 2.5% in most areas. In LA County, the combined rate is typically 9.5%, but it climbs to 10.25% in Santa Monica, Culver City, and several other municipalities. The rate is determined by the ship-to address, not your business address. So a sale from your warehouse in DTLA to a customer in Santa Monica is taxed at the Santa Monica rate (10.25%), not the DTLA rate (9.5%). This destination-based sourcing is the part most QBO files get wrong.

Origin vs. destination sourcing. California is technically modified-origin for state and county tax (sourced to the seller’s location) but destination for district tax (sourced to the buyer’s location). In practice, automated sales tax engines apply destination-based rates because the math is closer for most transactions. QBO’s automated sales tax feature handles this if turned on. Manual sales tax setup almost always gets it wrong. If you are still entering sales tax rates manually in QBO, turn on Automated Sales Tax and let QBO calculate by ship-to address. The migration takes about an hour and pays for itself in the first audit.

Out-of-state sales — the economic nexus problem. Wayfair let every state set its own threshold. Most states use $100,000 in sales or 200 transactions in the prior year. Some are higher. New York is $500,000 plus 100 transactions. Texas is $500,000. California’s own threshold for inbound sellers is $500,000. The threshold matters because once you cross it in a state, you have to register, collect, and remit. Not registering when you should is the most expensive sales tax mistake LA e-commerce sellers make. Penalties typically run 25% of uncollected tax plus interest, applied retroactively from the date you crossed the threshold.

Marketplace facilitator rules. If you sell on Amazon, Etsy, Walmart Marketplace, or eBay, those platforms collect and remit sales tax on your behalf in most states. You don’t need to collect or register because of those sales. But you do need to register and remit for your direct-to-consumer sales (your own website, wholesale, trade shows). The split confuses many sellers. We routinely see clients who think Amazon’s sales tax collection means they don’t owe anything — and then their Shopify sales push them over the threshold in a dozen states and they didn’t notice.

Tracking nexus by state. The practical approach: a monthly sales-by-state report. In QBO, run a Sales by Customer Detail report, then pivot or filter by state. Track rolling twelve-month sales and twelve-month transaction counts for each state. When you approach 80% of any threshold, get a sales tax registration started — registration in some states takes 60+ days. We use class tracking or location tracking in QBO to tag sales by destination state, which makes the report a one-click pull instead of an Excel project. Setup details are in our QBO Advanced custom reports guide.

Software options for multi-state sellers. If you are crossing the threshold in five or more states, manual tracking falls apart fast. The standard recommendations: Avalara AvaTax for larger operations ($500+/month, integrates directly with QBO), TaxJar for mid-size sellers ($100-300/month, integrates with QBO and most cart platforms), Quaderno for digital-only sellers (~$50/month and up). All three calculate the right rate at checkout and file returns in registered states. The cost is real but cheaper than mishandling 15 state returns manually. We help clients pick based on volume, platform, and product type.

Resale certificates and exemptions. If you sell to other businesses for resale, you can accept a resale certificate and not charge sales tax. You must collect the certificate (Form BOE-230 in California, or the multi-state Streamlined Sales Tax certificate) and keep it on file. The customer is then responsible for collecting sales tax when they sell the product. If you accept a fraudulent or incomplete certificate, you are liable for the tax. QBO has an Exempt customer setting — use it, and attach the certificate as a customer file. CDTFA audits resale certificates routinely.

Use tax — the often-missed flip side. If you buy items for use in California from out-of-state vendors who don’t charge California sales tax, you owe California use tax (same rate as sales tax). The most common example: a Shopify store buys $30,000 in shipping supplies from a company in Texas, no sales tax charged. The LA business owes 9.5% use tax on that purchase, payable through the next CDTFA return. QBO does not automatically calculate use tax. You have to track it separately. We set up a custom report that pulls expense purchases from out-of-state vendors and flags them for use tax accrual.

Shipping charges. California taxes shipping differently than most states. Separately stated shipping is non-taxable in California as long as the actual cost of shipping is what is charged, the shipping is direct from seller to buyer, and shipping is optional. If you charge a flat shipping fee that exceeds your actual cost, the excess is taxable. Most QBO files we audit have shipping coded as taxable when it should be non-taxable, which means the business has been overcharging customers (and remitting the excess to the state). Easy fix once you know.

Filing frequency. CDTFA assigns filing frequency based on tax liability. Under $1,200 in annual tax liability, you file annually. $1,200 to $12,000, quarterly. Above $12,000, monthly. The threshold catches most growing businesses around the second year — what was annual filing in year one becomes quarterly in year two, then monthly in year three. Each transition adds bookkeeping burden. Plan for it.

Filing in other states. Every state has its own filing portal, frequency, and rules. We typically use a sales tax service to file in 10+ states because the manual filing time becomes prohibitive. For two or three state filings, you can DIY through each state’s online portal. Set calendar reminders by state because due dates vary — some are the 20th of the month, some the 25th, some the last day. Missed deadlines compound penalties quickly across multiple jurisdictions.

What an audit looks like. CDTFA audits are usually field audits at the business’s office. The auditor wants to see your invoices, your sales by state, your resale certificates, your shipping documentation, and your use tax accruals. They will tie your QBO sales reports to your filed returns and to your federal tax return. Discrepancies trigger deeper dives. The single most useful thing you can do to prepare is keep your QBO file clean, your sales tax module turned on with destination-based calculation, and your resale certificates filed and accessible. We help clients prep for audits — see our tax strategy consulting page.

California payroll is more expensive and more complex than federal payroll, and most LA business owners discover this only after their first payroll run. The state administers four separate payroll taxes through the Employment Development Department (EDD): State Disability Insurance (SDI), Employment Training Tax (ETT), Unemployment Insurance (UI), and State Income Tax withholding (PIT). Each has its own rate, its own base, and its own deposit schedule. Layer that on top of federal (Social Security, Medicare, FUTA, federal income tax withholding) and a typical LA payroll run carries seven separate tax line items. Here is how each works and how to handle it in QBO.

SDI — State Disability Insurance. Paid entirely by the employee through wage withholding. The rate for 2025 is 1.1% of gross wages. As of January 1, 2024, the wage cap was eliminated under SB 951. So an employee earning $400,000 pays SDI on the entire $400,000, not on the old $153,164 cap. This is a meaningful change for high-earning LA employees. A $300,000 earner now pays $3,300 in SDI per year versus what would have been roughly $1,684 under the old cap. The employer does not pay SDI but is responsible for withholding it correctly. SDI funds California’s disability and paid family leave benefits.

ETT — Employment Training Tax. Paid by the employer. Rate: 0.1%. Base: the first $7,000 of wages per employee per year. So a maximum of $7 per employee, per year. Trivial in dollars but still a separate deposit and a separate liability. ETT funds the state’s training programs for industries with high unemployment. New employers usually pay ETT automatically; established employers may be assigned an ETT rate of 0%, in which case the obligation is waived.

UI — Unemployment Insurance. Paid by the employer. The rate ranges from 1.5% to 6.2%, depending on the employer’s experience rating. New employers start at a default rate (currently 3.4% for most industries). The base is the first $7,000 of wages per employee per year. The experience rating adjusts annually based on how much UI has been paid out to your former employees. Layoffs raise your rate. No layoffs over several years can drop it close to 1.5%. The federal counterpart, FUTA, sits at 6.0% of the first $7,000 with a 5.4% credit when you pay state UI on time — so effectively 0.6% federal. Total UI burden for a typical LA employer: 3.4% state + 0.6% federal = 4% on the first $7,000, or $280 per employee per year. Higher if you have a bad experience rating.

PIT — Personal Income Tax withholding. Withheld from employee paychecks based on California’s tax brackets and the employee’s DE-4 form. California has 10 income tax brackets with the top rate at 13.3% on income above $1 million (the 12.3% top bracket plus a 1% mental health services surcharge on $1M+ earners). This is the highest top state income tax rate in the country. PIT withholding is paid to EDD on the same deposit schedule as the other payroll taxes.

Deposit schedules. EDD assigns a deposit schedule based on prior-year payroll volume. The four schedules: Next-Day (very large employers), Semi-Weekly (medium-large), Monthly (medium-small), Quarterly (smallest). Most LA small businesses are on Monthly or Quarterly. Deposits are made through e-Services for Business, EDD’s online portal. Late deposits trigger penalties starting at 2% and escalating to 15% after 16 days. Interest runs on top.

The DE 9 and DE 9C filings. Every quarter, you file two forms with EDD: Form DE 9 (Quarterly Contribution Return and Report of Wages) and Form DE 9C (Quarterly Contribution Return — wage detail by employee). DE 9 reports total wages and totals owed for each tax. DE 9C reports wages by employee, by Social Security number. Both are due on the last day of the month following quarter-end (April 30, July 31, October 31, January 31). Penalties for late filing or wrong filing are aggressive — 10% of unpaid taxes plus 10% of underreported wages, both with statutory minimums.

How federal differs. Federal payroll taxes are simpler in some ways and harder in others. Social Security: 6.2% employee, 6.2% employer, on the first $168,600 (2025 wage base). Medicare: 1.45% employee, 1.45% employer, no wage cap, plus an additional 0.9% employee-only Medicare surcharge on wages above $200,000 (single) or $250,000 (married joint). Federal income tax withholding follows IRS Publication 15 tables. FUTA: 6.0% on the first $7,000, with the 5.4% state credit. Federal deposits go through EFTPS, not the IRS website directly, and use a separate schedule from California — usually Semi-Weekly or Monthly, with $100,000 next-day deposit if any single payroll triggers it.

Workers’ comp. Required for every California employer with one or more employees, regardless of size. Not technically a tax but functionally another payroll cost. Rates range from 0.5% to 15%+ of payroll depending on the job classification — office workers cheap, roofers expensive. Procured through a commercial carrier or the State Compensation Insurance Fund. Failure to carry workers’ comp in California is a misdemeanor and triggers a fine of $1,500 per employee plus stop-work orders.

The new wage notice and pay stub requirements. California requires every paycheck to include specific items on the pay stub: gross wages, total hours worked, all deductions itemized, net wages, pay period dates, employee name and last 4 of SSN, employer name and address, hours worked at each hourly rate, piece rate units if applicable. Missing items trigger penalties under Labor Code Section 226 of up to $4,000 per employee. We see this in audits: a payroll provider running QBO Payroll that omits one of the required items, and the employer ends up paying penalties per employee per pay period. Audit your pay stub format. The fix is simple. The penalties for ignoring it are not.

Setting it up in QBO. If you use QBO Payroll (recommended for most small employers), the system handles the SDI, ETT, UI, PIT, federal Social Security, Medicare, and FUTA calculations automatically. It files DE 9, DE 9C, Form 941, and Form 940 on your behalf. Your job is to set up the employee in QBO with the correct DE-4 information, verify the workers’ comp class, and reconcile the payroll liability accounts monthly. Common mistakes we clean up: payroll provider connected to QBO without account mapping, so payroll liabilities accumulate in the wrong general ledger account. Verify the GL mapping in the payroll settings the first month and again whenever you add a new payroll item. See our QBO Advanced payroll guide for the full setup.

The total cost of a California employee. A typical LA employee earning $80,000 in 2025 costs the employer roughly $86,000 to $90,000 fully loaded: $80,000 in wages, $6,120 in employer Social Security and Medicare, $280 in state UI, $7 in ETT, $42 in FUTA, plus workers’ comp at 1-3% depending on job class (so $800-$2,400), plus health insurance (varies widely, often $500-$1,500/month employer share). Compare that to a similar job in Texas where there is no state income tax, lower workers’ comp, and no SDI — you can be looking at 8-12% more total cost in California versus a no-state-income-tax state. That difference shapes hiring decisions for any LA business that can work remote.