Federal Payroll Taxes: The Baseline

Every employer in the country pays the same federal payroll taxes, and Los Angeles is no exception. FICA — Social Security at 6.2% and Medicare at 1.45% — is split between employer and employee. The Social Security wage base for 2025 is $176,100. Above that, only the Medicare portion continues, and employees earning more than $200,000 pay an additional 0.9% Medicare surtax from their side.

FUTA is 6.0% on the first $7,000 of wages per employee, but California employers in good standing receive the 5.4% credit, bringing it to 0.6%. If California’s UI trust fund borrows from the federal government (which has happened before), that credit can shrink — something worth watching.

California’s Four-Part State Payroll Tax System

California splits its state payroll obligations into four distinct taxes, all administered by the EDD:

• State Unemployment Insurance (SUI): Employer-paid. Rates range from 1.5% to 6.2% on the first $7,000 of wages per employee. New employers start at 3.4%.
• Employment Training Tax (ETT): Employer-paid. A flat 0.1% on the first $7,000 of wages per employee. Small dollar amount, but it’s a separate line item you can’t skip.
• State Disability Insurance (SDI): Employee-paid. The 2025 rate is 1.1% with no wage ceiling — California removed the cap in 2024, which means high earners pay significantly more.
• Personal Income Tax (PIT) withholding: Employee-paid. California’s rates run from 1% to 13.3%, and you’re responsible for calculating and withholding the correct amount from every paycheck.

That’s four separate tax calculations on every payroll run before you even get to the federal side.

SDI and Paid Family Leave in California

California’s SDI program includes Paid Family Leave (PFL) — they’re bundled under the same tax. When your employee pays the 1.1% SDI withholding, that covers both short-term disability benefits and paid family leave. No separate deduction needed, unlike New York where they’re broken out.

The removal of the SDI wage cap in 2024 was a big deal for LA employers with high-earning employees. A software engineer making $250,000 now pays $2,750 in SDI instead of hitting a cap around $1,600 under the old rules. As the employer, you need to make sure your payroll system updated to reflect the uncapped calculation.

EDD Reporting and DE 9 Filing

California employers file Form DE 9 (quarterly contribution return) and DE 9C (quarterly wage detail report) with the EDD each quarter. These are due by the last day of the month after the quarter ends — same schedule as most states.

New hire reporting goes to the EDD within 20 days of the employee’s start date. Independent contractor payments over $600 also get reported to the EDD, not just to the IRS. California is aggressive about worker classification, and the state uses the ABC test under AB 5 — which is stricter than the federal common-law test. If you’re using 1099 contractors in LA, make sure you can satisfy all three prongs of that test.

Los Angeles City-Level Obligations

Los Angeles doesn’t impose a separate city payroll tax, but LA businesses should know about the LA City Business Tax (sometimes called the gross receipts tax). It’s not technically a payroll tax, but it’s calculated based on your business revenue and affects your total cost of doing business. Rates vary by industry — some pay as little as $1.01 per $1,000 of gross receipts, while entertainment and creative services businesses may pay higher rates.

No city-level income tax withholding is required in LA. That’s one fewer thing to calculate compared to places like New York City, where employers withhold city income tax on top of state.

Mistakes LA Employers Keep Making

The ABC test trips up more Los Angeles businesses than any other single compliance issue. California’s standard is strict: a worker is an employee unless they are (A) free from control, (B) performing work outside the usual course of the hiring entity’s business, and (C) customarily engaged in an independent trade. Prong B alone disqualifies most contractors who do work related to your core business.

The other common problem is underpaying SDI now that the cap is gone. If your payroll provider hasn’t updated, your high-earning employees are being under-withheld, and the liability falls on you when the EDD catches it.