What California takes from your paycheck and why

California payroll taxes are deductions your employer takes from your wages and sends to the state and federal government. The main ones are Social Security tax, Medicare tax, federal income tax withholding, and California state income tax withholding. Your employer also pays a separate payroll tax on your wages that you do not see on your check — that money does not come from your pay.

The taxes you see deducted are meant to cover Social Security retirement and disability benefits, Medicare health insurance for people 65 and older, and general government operations. California also has two additional payroll taxes that apply only in this state: the California State Disability Insurance (SDI) tax and the Paid Family Leave (PFL) tax. Both come out of your paycheck.

The amount withheld depends on how much you earn, how often you are paid, and the tax forms you filled out when you were hired. If too much is withheld, you get a refund when you file taxes. If too little is withheld, you owe money.

Key Takeaways

  • California withholds federal income tax, Social Security tax, Medicare tax, state income tax, SDI tax, and PFL tax from most paychecks.
  • The amount withheld from each paycheck depends on your earnings, pay frequency, and the W-4 form you completed when hired.
  • SDI and PFL are California-only taxes that fund short-term disability and paid family leave benefits, and they come directly out of your wages.
  • Your employer also pays separate payroll taxes that do not reduce your paycheck, including federal unemployment tax and California unemployment insurance.
  • You can adjust your withholding by submitting a new W-4 form to your employer if you expect a large refund or owe money at tax time.

Federal taxes withheld from your California paycheck

Three federal taxes come out of every paycheck for most workers: Social Security tax at 6.2 percent of gross wages, Medicare tax at 1.45 percent of gross wages, and federal income tax withholding. The Social Security and Medicare rates are fixed by federal law and do not change. Federal income tax withholding varies based on your W-4 form and your total earnings.

Social Security tax stops once you reach a wage cap set each year by the federal government. In 2024, that cap is $168,600 — meaning once you have earned that much in a calendar year, no more Social Security tax is taken. Medicare tax has no cap and continues on all wages. If you earn over $200,000 as a single filer (or $250,000 if married filing jointly), an additional 0.9 percent Medicare tax applies to the amount over that threshold.

Federal income tax withholding is calculated using tables based on your W-4 form. The form asks about your filing status, number of dependents, and other income or deductions. The more dependents you claim or the more adjustments you make, the less federal tax is withheld. If you claim zero dependents and make no adjustments, more tax is withheld.

California state taxes withheld from your paycheck

California withholds state income tax from most paychecks using a similar system to federal withholding. You complete a CA Form W-4 (or the older Form DE 4) when hired, and your employer uses it to calculate how much state tax to withhold each pay period. California state income tax rates range from 1 percent to 13.3 percent depending on your total income — the more you earn, the higher your rate.

Unlike the federal system, California does not have a wage cap for income tax. All wages are subject to state income tax at your applicable rate. If you work in California but live in another state, you still owe California income tax on wages earned in California.

You can adjust your California withholding by submitting a new CA Form W-4 to your employer. This is useful if you had a large refund last year (meaning too much was withheld) or owed money (meaning too little was withheld). The form takes effect on the next pay period after your employer receives it.

California SDI and PFL taxes

State Disability Insurance (SDI) is a California-only payroll tax that funds short-term disability benefits. If you become unable to work due to illness or injury not related to your job, SDI can replace part of your wages for up to 52 weeks. The SDI tax rate is set by California and changes each year — in 2024 it is 1.0 percent of gross wages, with a maximum taxable wage of $153,164.

Paid Family Leave (PFL) is another California-only tax that funds benefits when you take time off to bond with a new child, care for a family member with a serious health condition, or handle certain military family needs. The PFL tax rate is also set annually — in 2024 it is 0.6 percent of gross wages, with the same maximum taxable wage as SDI. Both SDI and PFL are deducted from your paycheck.

You do not apply for SDI or PFL taxes to be taken — they are automatic for most California workers. However, you must file a separate claim with the California Employment Development Department (EDD) if you need to use the benefits. Self-employed workers can choose to participate in SDI and PFL, but it is not automatic.

Employer payroll taxes you do not see on your check

Your employer pays additional payroll taxes on your wages that do not appear on your paycheck. These include federal unemployment tax (FUTA) at 0.6 percent of the first $7,000 of your annual wages, and California unemployment insurance (UI) tax. The California UI rate varies by employer and industry but typically ranges from 1.5 percent to 5.4 percent of the first $7,000 of each employee's annual wages.

Employers also pay the California employer portion of SDI in some cases, though most of the SDI cost comes from employee withholding. These employer taxes are a cost to the business and do not reduce your paycheck, but they are part of the total payroll tax burden.

If you are self-employed in California, you pay both the employee and employer portions of Social Security and Medicare taxes, plus you must pay self-employment tax. You also have the option to pay into SDI and PFL as a self-employed person, though it is not required.

How to understand your paycheck stub

Your paycheck stub lists each tax withheld, the amount, and your year-to-date total for that tax. The stub shows gross pay (before taxes), each deduction, and net pay (what you actually receive). Federal withholding is usually labeled "FIT" or "Federal Income Tax." State withholding is labeled "SIT" or "California Income Tax." Social Security appears as "OASDI" or "Social Security," and Medicare as "Medicare" or "Med."

SDI and PFL are labeled clearly on California paychecks. If you do not see them, ask your payroll department — some employers combine them into a single line item. If you see a deduction you do not recognize, your paycheck stub should have a legend or your employer can explain it.

If the amounts withheld seem wrong, check that your W-4 and CA Form W-4 are current. If you changed jobs, got married, had a child, or had a major change in income, your withholding may no longer be accurate. You can submit new forms to your employer to adjust it.

Frequently Asked Questions

Can I stop California SDI and PFL taxes from being taken?

No, SDI and PFL are mandatory for most California employees and cannot be opted out of. Self-employed workers can choose whether to participate. If you believe you are incorrectly classified as an employee, you can contact the California Employment Development Department to dispute your status.

What happens if my employer does not withhold the right amount of taxes?

If your employer withholds too little, you will owe the difference when you file your tax return, plus possible penalties and interest. If your employer withholds too much, you will receive a refund. You can also adjust your W-4 forms to change future withholding. If your employer is not withholding at all, contact the California Department of Tax and Fee Administration or the IRS.

Do I have to pay California income tax if I work remotely for a company outside California?

If you work remotely but are employed by a California company, you owe California income tax on all wages. If you work remotely for an out-of-state company and live in California, you generally do not owe California income tax on those wages — but you should verify this with a tax professional, as rules vary by situation.

Why is my paycheck so much smaller than my salary?

Payroll taxes typically reduce your take-home pay by 20 to 30 percent depending on your income level and withholding choices. Federal income tax, state income tax, Social Security, Medicare, SDI, and PFL all come out before you see your check. If the reduction seems larger than expected, review your W-4 and CA Form W-4 to see if you are withholding more than necessary.

Can I get a refund of SDI or PFL taxes if I do not use the benefits?

No, SDI and PFL taxes fund a state insurance pool and are not refundable. However, if you pay into the system and later need to use the benefits, you can file a claim with the EDD. The benefits are meant to replace part of your wages during may have access to events, not to return your tax payments.